Markets across the globe fell on Wednesday as investors remained concerned about rising covid-19 cases impacting economic recovery with partial lockdowns in few countries including India. Slumping nearly 2%, the markets have declined the most in a month. The BSE Sensex slipped 871.13 points or 1.74% closing at 49,180.31 while the 50-stocks index Nifty slipped 265.35 points or 1.79% at 14,549.40.
Equities in other Asia-Pacific regions were largely lower. The Hang Seng index in Hong Kong was one of the biggest losers among the region’s major markets, closing 2.03% lower. Japan’s Nikkei and China Shanghai composite slipped around 2%.
Binod Modi, Head Strategy, Reliance Securitie said, “Domestic equities fell sharply on weak global cues and continued apprehensions among investors from surge in Coronavirus cases in the Country. Further, a sharp rebound in dollar index aggravated concerns despite dip in US bond yields and crude prices." While recent contraction in global bond yields and crude prices augur well for domestic markets, recent rise in Covid-19 cases in various parts of the country has clearly dented investors’ sentiments, Modi added.
A new double mutant strain of coronavirus has been detected in India, along with the UK, South African, and Brazilian variants, the union health ministry said on Wednesday. The new strain, the government indicated, is highly infectious and has the potential to skip immunity developed either by natural infection or vaccination.
Meanwhile, the India volatility index or VIX rose nearly 9% on Wednesday closing at 22.46. High VIX levels indicates that the markets are expected to see further corrections.
However, foreign institutional investors (FIIs) continued to pump money into Indian shares. In this year so far, they have invested $8.19 billion while the net inflow is $3.2 billion in March alone. Domestic institutional investors are still net sellers of equities worth ₹32583 crore in 2021 so far and ₹4254 crore in March.
“While the Nifty forward valuations at 21 times price to earnings is higher than long term averages, it is adequately counterbalanced by lower interest rates (compared to long term averages), earnings upgrade cycle and strong reforms narrative. India's valuation premium to MSCI emerging markets has remained steady around 40% despite the rally," Rahul Singh, Chief Investment Officer (CIO) – Equities, Tata Mutual Fund, said.
However, Singh feels the increase in crude prices may effect India's macro variables (current account deficit, fiscal deficit) versus other emerging markets putting India's premium valuation under threat.
The rupee weakened by 13 paise to close at 72.56 against the US dollar on Wednesday.
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