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NEW DELHI : Indian stocks suffered the steepest rout in more than two months as investors dumped risky assets amid growing worries about inflation and an economic slowdown. The brutal selloff wiped out ₹6.71 trillion of investor wealth on Thursday.
Benchmark indices Sensex and Nifty plunged 2.61% and 2.65%, respectively. Thursday’s drop was the steepest since 7 March.
Analysts said that renewed growth concerns have emerged as global central banks have turned increasingly vocal about their intention to fight spiralling inflation. In addition, corporate earnings are also reeling under input cost pressures, evident from a spate of earnings misses in the US, adding to investors’ anxiety. In India, selling by foreign portfolio investors (FPIs) continued unabated.
Naveen Kulkarni, chief investment officer of Axis Securities, said that the global economy’s growth momentum is slowing due to liquidity tightening by central banks, even as supply-side bottlenecks because of the Russia-Ukraine conflict show no sign of easing.
“This will keep energy and food prices high," Kulkarni said, adding that this raises the spectre of stagflation, leading to discretionary spending slowing down.
Recent earnings reported by US retailers reflected the severe impact of surging retail inflation, resulting in the rout on Wall Street on Wednesday.
Persistent selling by foreign investors and mounting fears of an economic slowdown have wreaked havoc on the domestic market, said Vinod Nair, head of research at Geojit Financial Services.
FPIs have remained net sellers, offloading ₹1.56 trillion worth of equities in 2022. The provisional data for Thursday showed they were net sellers of ₹4,899.92 crore worth of equities.
Other Asian indices, too, remained under pressure, with Nikkei, Taiwan and Hang Seng ending 1.7-2.54% lower on Thursday. Only Jakarta Composite and Shanghai Composite gained 0.36-0.44%.
The dollar gained ground as the selloff in risk assets boosted the greenback’s safe-haven appeal. Rising crude prices also continued to pressure the rupee. Brent crude was trading at around $109.39 a barrel on Thursday.
The Indian currency closed at a fresh all-time low of 77.72, falling 14 paise. The drop was worsened by FPI selling in bonds and equity, said Anindya Banerjee, vice-president, currency derivatives and interest rate derivatives at Kotak Securities Ltd.
The yield on the 10-year India benchmark bond remained elevated at 7.32%.
A weak rupee, high crude prices and surging inflation are likely to keep investors wary. Rising VIX, or the fear gauge, is also adding to the discomfort, said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services Ltd. India VIX surged 10.14% on Thursday to 24.56.
Accelerating inflation, sustained FII selling, and the rupee depreciating to an all-time low have turned investors pessimistic in the near term, added Khemka. Even minutes from RBI’s meeting suggested a more hawkish tone for its forthcoming monetary policy meeting in June, he said.
Kulkarni expects markets to remain volatile in the near term though they may recover in the second half of the fiscal once markets price in the impact of global slowdown and higher rates.
For investors looking at investment ideas in a highly volatile environment, Nair suggested they can focus on sectors like fast-moving consumer goods, whose valuations are reasonable.
Meanwhile, Kulkarni favours good quality private sector banks, oil refiners and exploration companies, agri-linked companies such as tractor makers.
