Lockdown worries send equities, rupee spiralling on Black Monday

Stocks plunged 3.5% on Monday as more states curbed mobility and put restrictions on businesses to stop the contagion, and Maharashtra, India’s most industrialized state, weighed a complete lockdown.

The benchmark BSE Sensex plummeted 1,707.94 points or 3.44% to close at 47,883.38, the sharpest decline since 26 February, while the Nifty shed 3.53% to 14,310.80.

Markets in the Asia-Pacific region traded lower as well, with China’s Shanghai Composite Index, Hong Kong’s Hang Seng index and Japan’s Nikkei 225 losing around 1%.

Concerns of a possible reversal in economic momentum and earnings recovery triggered the sell-off, eroding investor wealth of ₹9 trillion, said Binod Modi, head of strategy at Reliance Securities. “Domestic equities today reminded one of the bloodbath of March 2020 as the record rise in covid-19 cases in the country and the possibility of lockdowns in several states dented investors’ sentiment. The recent weakness in the Indian rupee may also aggravate investors’ concerns. However, softening of global bond yields and crude prices offered some comfort,” Modi said.

Markets are now 8% below their all-time high in February, with foreign institutional investors (FIIs) turning net sellers of equities for the first time in seven months. FIIs sold a Indian equities worth a net $186 million in April. However, domestic institutional investors (DIIs) were net buyers of shares worth ₹1,090.59 crore in the month.

“FII sentiment for the near term will be muted as the markets are still trading above their five-year average; however, the discount has narrowed as the Nifty is down almost 7-8% from its highs. Near-term there will be weakness; however, Q4 earnings, along with management commentary, which we expect to be positive, should support downside until we see some easing in the rate of increase in covid cases,” said Amit Shah, head of India equity research at BNP Paribas.

On Monday, the India Volatility Index or VIX closed 16.2% higher at 22.99, the sharpest rise in over a month, indicating investor fears of an impending correction. The rupee weakened past the 75-mark against the dollar to hit a nine-month low on continued selling pressure from foreign investors in local equities and bond markets.

Six states—Maharashtra, Karnataka, Punjab, Chhattisgarh, Madhya Pradesh and Gujarat—together make up 66% of new cases in the week ended 11 April. “The traffic congestion index for major cities in some of the hardest-hit states—Mumbai (Maharashtra), Bengaluru (Karnataka), and Ahmedabad (Gujarat)—has nosedived in the past few weeks and is winding back towards levels seen during the lockdown last April,” said Crisil in a report on 12 April.

Analysts warned the second wave may result in weaker demand in the quarter.