Global markets selloff ends India's five-day and eight-week winning run

Sensex, Nifty end over a per cent lower on fears of US recession

A global equity selloff, primarily fuelled by disappointing US economic data that reignited recession fears, brought an end to a five-day, and eight-week winning streak for the Indian markets on Friday. The benchmark indices, Sensex and Nifty 50, suffered their most significant decline since the Lok Sabha election result day on June 4, with both tumbling over 1 per cent.

The rupee also felt the pressure, depreciating to a new intraday low of 83.76 against the dollar. Dealers attributed this to weakness in the equity market and strong domestic demand for the greenback from importers. The currency ultimately settled at 83.75 per dollar, down from 83.73 the previous day.

 

Market participants noted that the rupee’s decline was tempered by the Reserve Bank of India's (RBI) intervention in the foreign exchange market as it reportedly went for dollar sales of $100 million-$200 million.

Tracking a 1.4 per cent decline in US markets the previous day, the Sensex closed at 80,982, down 886 points or 1.1 per cent, while the Nifty 50 ended at 24,718, shedding 293 points or 1.2 per cent. Prior sessions had seen both indices reaching lifetime highs after the US Federal Reserve hinted at a possible rate cut in September.

However, the US’ higher-than-expected weekly initial jobless claims and a slowdown in manufacturing data have raised concerns that the Fed may already be behind the curve on lowering interest rates. Additionally, escalating geopolitical tensions in West Asia dampened market sentiment.

Asian markets opened sharply lower on Friday, with the Japanese markets plunging over 5 per cent, the South Korean markets dropping nearly 4 per cent, and Australia closing more than 2 per cent lower. The European markets also traded between 1 per cent and 2 per cent lower, mirroring the global bearish trend. Major US indices were in the red in early trade on Friday.

"The weak data points in a leading US survey-based economic indicator have increased the risk of a further softening of the US labour market, suggesting the US economy is likely on the brink of a hard landing or recession,” said Kelvin Wong, senior market analyst at Oanda. “A Fed interest rate cut may be implemented late in the US economic cycle, where a downturn may already be in motion.”

Foreign portfolio investors (FPIs) withdrew Rs 3,310 crore from Indian stocks on Friday, while domestic institutions were net buyers with investments amounting to Rs 2,966 crore.

Market analysts observed that after a relentless eight-week rally, investors were seeking a trigger to sell. “The Indian market is showing signs of fatigue at higher levels, as most positive factors have already been priced in. Subdued first-quarter earnings and stretched valuations were not reassuring investors. Sector-wise, metals have been affected by weak results and higher imports harming domestic industries. Capital goods and real estate have been impacted by profit-booking, while the auto sector has suffered due to below-expected monthly sales figures,” stated Vinod Nair, head of research, Geojit Financial Services.

Auto and metal stocks were among the worst performers, with Maruti Suzuki, Tata Motors, JSW Steel, and Tata Steel leading the losses on the Sensex. In contrast, HDFC Bank and Sun Pharma managed to gain nearly 1 per cent each.

“The Nifty 50, after achieving the historical mark, witnessed profit-booking from a higher zone following weakness in the global market. India's VIX rose by nearly 11 per cent, indicating increased nervousness in the market,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

For the week, the Sensex and the Nifty fell by 0.4 per cent and 0.5 per cent, respectively.

Among sectoral indices, realty stocks experienced the sharpest decline, with Nifty Realty plummeting by 3.53 per cent. The Nifty IT, Nifty Auto, and Nifty Metal were other sectoral indices that fell by over 2 per cent.

The decline in midcap and smallcap indices was relatively muted. The Nifty Midcap 100 index corrected by 1 per cent, while the Nifty Smallcap 250 index decreased by 0.83 per cent.

With inputs from Anjali Kumari