Sensex sheds 586 points over Covid-19 surge in biggest drop since April 30

Inflation, delta variant concerns trigger global risk off sentiment

The benchmark indices on Monday declined along with Asian and European peers as investors were worried by the surge in Covid-19 cases and rising inflation. The benchmark Sensex fell 586 points to end the session at 52,553, a decline of 1.10 per cent in the biggest single-day fall since April 30.

The Nifty tumbled 171 points to end the session at 15,752, a drop of 1.07 per cent.

Safe-haven assets, including gold, rose amid risk off sentiment among investors. The US bond yields were trading at their lowest since February 12 at 1.25 per cent. The dollar strengthened against its major peers as sentiment turned cautious.

Analysts said global economic growth shows signs of fatigue as many countries, especially in Asia, are struggling to curb the highly-contagious Delta variant. Many South Asian nations are struggling with worsening outbreaks amid a slow vaccine rollout.

Analysts said restrictions to curb the infection spread would hold back economic recovery, and there will be downward revisions to the gross domestic product (GDP) growth for some economies.

Investors are also worried that inflation might force central banks to taper their monetary easing programme sooner than expected.

However, US Federal Reserve Chairman Jerome Powell has assured that any inflation flare-up is expected to be transitory. And said the monetary policy support would continue for some more time.

“Some of the worries are we could be heading for a slowdown globally. Bond yields at 1.25 per cent, telling you that either this is slowdown coming or this is something different. All of these things and the number of rising cases in Europe, the US and Asia are challenging the thought that the reopening of the economies will not be as spectacular as people thought. Markets are grappling with all these concerns. But markets are coming off from the highs. So 1-2 per cent slide should not be a great concern. The liquidity is still there, and once things calm down, markets will move higher again. We have less evidence at this stage to say there is slowdown or inflation,” said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies

The benchmark Sensex and the Nifty had hit fresh lifetime high last week.

Analysts said for countries like India fall in demand triggered by the rise in Covid cases could be the short term concern, and in the medium-term inflation, worries could come to the forefront.

“Even if the new variant spreads, we could still manage. But if the new variant spreads and kills people despite vaccination action, then it will be a huge dampener. But it’s too early to conclude. Moreover, valuations remain a concern. Investors should be extremely cautious in the small and mid-cap space. These stocks are very vulnerable to steep fall. A lot of loss-making companies are trading at high valuations,” said G. Chokkalingam, Founder Equinomics.

Barring four, all the Sensex stocks ended the session with losses. HDFC Bank was the worst-performing stock and fell 3.3 per cent after its quarterly results missed estimates, and the lender set aside more funds for bad loans.

The market breadth was positive, with 1,757 stocks advancing and 1,571 declining. Five hundred and twenty stocks hit their 52 weeks high, and 622 were locked on the upper circuit. All the sectoral indices barring four fell. Banking and Auto stocks fell the most, and their gauges fell 1.76 and 1.05 per cent, respectively.