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Dragged by global concerns on inflation and rising covid cases, domestic equity market slipped to nearly three-month low on Monday. The BSE Sensex lost 586.66 points or 1.10% closing at 52,553.40. The Nifty also dropped 171 points or 1.07% at15,752.40. Investor sentiment in markets in rest of Asia-Pacific region remained muted with Japan's Nikkei falling 1.3% while South Korea's Kospi closed 1% lower.

Vinod Nair, Head of Research at Geojit Financial Services, said “Shadowing global sell-off, Indian indices slipped succumbing to world inflation woes, FOMC (Federal Open Market Committee (FOMC meeting next week and rising covid cases. Banks led the domestic downtrend as initial quarterly results pointed to cautious asset quality due to the impact of the second wave. Slackening economic growth in the US led to reports of likely downgrade in growth forecast in current year triggering global sell-off."

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As asset quality of HDFC Bank has deteriorated marginally in April-June due to disruptions in collections due to second covid wave, there is a growing concern about the deeper pandemic impact on the economic. “In our view, spread of delta plus variant globally could be a near risk for markets," Binod Modi, Head Strategy, Reliance Securities said. While subpar June quarter performance reported by HDFC Bank during weekend along with visible stress in asset quality weighed on overall financials today, positive outcome from Organization of the Petroleum Exporting Countries (OPEC) meeting, wherein ease of production cut was agreed fully by September, should offer comfort to emerging markets including India, Modi said.

Oil prices fell sharply on Monday after OPEC+ overcame internal divisions and agreed to boost output, sparking concerns about a crude surplus as covid-19 infections rise in many countries.

Brent crude was down $2.54, or 3.4%, at $71.05 a barrel. The benchmark recorded its largest declines since early April. OPEC+ ministers agreed on Sunday to increase oil supply from August to cool prices that this month hit their highest level in more than two years as the global economy recovers from the covid-19 pandemic. The group of members of the OPEC and allies such as Russia also agreed new production shares from May 2022.

“US treasuries climbed (10 year bond) and oil slipped which would be an early indication of US growth is tapering. The dollar index jumped to the level of 93 that would increase outflows from the emerging market especially for the Indian market. We feel it's general profit-taking from market participants on the back of weakness on the global equities," said Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities.

Meanwhile, mobility indicators suggest that business in India is seeing a recovery at a faster pace as regional lockdowns are relaxed. The Nomura India Business Resumption Index (NIBRI) accelerated to 96.4 for the week ending 18 July from 94.9 the previous week – now only 3.6 percentage points (pp) below pre-pandemic levels. Mobility indicators such as Google’s workplace and retail & recreation mobility indices continued to rise (2.4pp and 5.1pp w-o-w respectively), as did the Apple driving index (3.9pp). Power demand fell 2.8% w-o-w after rising 1.4% the previous week to pre-pandemic levels. The labour participation rate moderated to 40.4% from 40.6%, Nomura said.

“The first flush of conventional monthly data for June suggest a gradual V-shaped recovery from the nadir in May. In first half of July, GST e-way bills have moderated somewhat (, railway freight revenues are flat and power demand momentum has eased, but that largely reflects seasonal softness, with underlying activity continuing to improve, in our view. Meanwhile, the pace of vaccination has slowed marginally in July thus far and pandemic cases are plateauing at an elevated level of 39,000 per day. With mobility continuing to pick up through July and broader vaccination coverage still a quarter away, the key risk to India’s growth recovery is the threat of a third wave during this period," said Sonal Varma and Aurodeep Nandi, economists, Nomura.

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