Indices slump 2.6% as sell-off deepens; metal, realty top losers

Concerns over Fed rate hike, Ukraine add to investor woes

India’s benchmark indices tumbled for the fifth straight session on Monday as investors continued to dump risky assets on fears that the US Federal Reserve might embark on a sharper rate hike trajectory to control inflation.

Rising global tensions over Ukraine and crude oil prices hitting a seven-year peak also kept investors’ mood sombre. Domestic factors weighing on sentiment included subdued corporate earnings, Budget uncertainty, and sustained selling by global funds amid concerns over expensive valuations.

The Sensex fell 1,546 points, or 2.62 per cent, to close at 57,491 -- the lowest level since December 27. The Nifty declined 468 points, or 2.66 per cent, to settle at 17,149. This was the sharpest single-day fall for both the indices since November 26, when stocks had tumbled amid concerns about Omicron spread. In the last five trading sessions, the domestic markets have plunged over 6 per cent, causing a wealth erosion of nearly Rs 20 trillion.

The US markets were also trading in the red. The Dow Jones was down 1.9 per cent, while the Nasdaq index was down nearly 3 per cent as of 09:40 pm IST.  

The Fed is likely to signal this week an interest rate hike in March to fight inflation. Last week, economists at Goldman Sachs had said they saw the central bank tightening the monetary policy more aggressively this year than Wall Street anticipated. The sentiment has reflected in the bond markets with the 10-year US Treasury yield touching 1.9 per cent last week from 1.35 per cent in early December.

“People have started wondering if the rate hike is going to be more than 25 basis points. Could it be 50 basis points for the Fed to get ahead of the curve? And is it going to be earlier than March? It also didn't help that oil prices have been rising. It all came at the same time. All of this is playing into the volatility. We have the Budget next week, and the Fed's announcement will give some clarity,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

The Sensex, after rising more than 5 per cent this month, is now down 1.3 per cent on a year-to-date basis. The Indian market is 3 per cent up over its December 2021 lows. Some believe the recent turbulence in the market isn’t a reason to worry too much.

“The economy is in a good shape. Because we had such an exuberant rally, some people are getting spooked and selling. I don't see any reason why investors in high-quality stocks should worry. It is a typical tremor you get as central banks start tightening rates. The main purpose is to take the froth of the table at the interest in low-quality companies. In that regard, what happened over the last five sessions is a healthy correction,” said Saurabh Mukherjea, founder, Marcellus Investment Managers.

The India Vix index soared to nearly 23 per cent on Monday, signalling more market volatility. Concerns over interest rate hikes and tapering of bond purchases have driven market volatility ever since central banks, including the Federal Reserve, prioritised fighting inflation over growth. For most of the last year, central banks had termed inflation as a transitory phenomenon.

The shift has led to a major sell-off across global markets, and it has been more pronounced in tech stocks and cryptocurrencies.

This sudden change of stance on inflation, which hit a new high in the developed world, has rattled investors. Experts have termed this change as from being patient to overzealous to get ahead of inflation. And for the first time in decades, the Fed is chasing inflation instead of pre-empting it, experts say.

The simmering geopolitical tensions between Russia and Ukraine further worsened the mood. For many investors, the change in stance ended the record post-pandemic rally in equities powered by near-zero interest rates and aggressive bond purchases. The rally saw the entry of millions of first-time investors, who were attracted to equities partly due to a lack of returns in other asset classes, and partly due to lockdown-induced restlessness.

The market breadth was weak, with six stocks declining for one gaining on the BSE. All the sectoral indices and Sensex components ended the session in the red. Realty and Metal stocks declined the most, and their sectoral indices fell 5.9 and 5 per cent, respectively.