All key sectoral indices were in the red on Monday with financials witnessing the steepest fall mainly on renewed apprehensions about asset qualities and recovery in credit growth cycle
The fall in both indices was the fourth biggest fall in terms of absolute numbers so far this year
Stocks plunged more than 1.7% on Monday over worries that the return of covid-19 curbs in various states could derail economic recovery.
Out of the record 103,558 new cases reported across the country on Sunday, Maharashtra accounted for over 57,000, prompting the state to impose new curbs, including a state-wide night curfew and a complete lockdown on weekends.
Financial stocks witnessed the steepest fall on Monday, mainly on renewed worries about asset quality and recovery. The rise in US bond yields, which could impact fund flows into emerging markets, also worried investors.
The benchmark Sensex shed 1.74% or 871 points to close at 49,159.32, while the 50-share Nifty dropped 1.54% or 265 points to 14,637.80. For both indices, Monday’s decline is the biggest fall in terms of points since 26 February, as well as the fifth-biggest in FY21. Only the technology and metal indices posted gains on Monday.
With India’s daily coronavirus count showing no signs of slowing down, analysts fear stocks will fall further in the coming days.
“A sharp spike in coronavirus cases and resultant business restrictions are likely to remain near-term headwinds for domestic equities. Imposition of weekend lockdown in Maharashtra, which contributes over 13% of the country’s GDP and 20% of India’s industrial output, certainly does not augur well," said Binod Modi, head of strategy at Reliance Securities.
According to Rusmik Oza, head of fundamental research at Kotak Securities, “In the immediate future, Indian markets could go in for some correction and consolidation, but as time goes by, it could recoup and stand out."
“The sharp surge in covid cases has dented investor sentiments and increased fear of harsh restrictions, which would impact economic activity. Government action to curb the surge will be one of the important factors to watch out for," said Ajit Mishra, vice-president, research, Religare Broking.
A Care Ratings analysis showed the new measures imposed by Maharashtra will lead to a decline in output by around ₹40,000 crore and lead to a dip in gross value added (GVA) growth by 0.32% at the overall domestic economy level.
“This will lower India’s GVA growth to 9.92% for FY22 and subsequently GDP growth to 10.7-10.9% under ceteris paribus conditions, meaning thereby other states function in a normal manner. If the impact of other state lockdowns is added, there could be further downward pressure of another 0.1-0.2%," the rating agency said.
Brokerage firm Nomura Research said the surge in covid has not destabilized countries’ economic recovery but localized curbs may impact growth in April-June quarter.
“As the second wave started towards the end of March, and as the economy normalized rapidly in January and February, the second wave may not have a major impact on Q1 GDP growth", Nomura said in a report. “However, if the second wave worsens, causing more state-level restrictions and a moderation in contact services (which appear likely 1-3 months), then the sequential momentum in Q2 (April-June) will likely be close to zero or marginally negative", the report added.