Indian stocks fell the most in nearly a month on Wednesday as investors worried that spiralling coronavirus cases will derail the economic recovery.
The BSE Sensex dropped 871.13 points, or 1.74%, to close at 49,180.31, while the 50-stock index Nifty slipped 265.35 points or 1.79% to 14,549.40. It was the sharpest daily decline since 28 February.
Equities in other Asia-Pacific markets also declined. Hong Kong’s Hang Seng index was one of the biggest losers among the region’s major markets, closing 2.03% lower. Japan’s Nikkei and China’s Shanghai Composite indices fell around 2%.
“Domestic equities fell sharply on weak global cues and continued apprehensions among investors about the surge in coronavirus cases in the country. Further, a sharp rebound in the dollar index aggravated concerns despite a dip in US bond yields and crude prices," said Binod Modi, head of strategy at Reliance Securities.
“While the recent contraction in global bond yields and crude prices augur well for domestic markets, the recent rise in covid-19 cases in various parts of the country has clearly dented investors’ sentiments," Modi said.
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 during the day.
The new strain, the government indicated, is highly infectious with the potential to skip immunity developed either by natural infection or vaccination.
Meanwhile, the India volatility index, or VIX, rose nearly 9% during the day, closing at 22.46. High VIX levels show that the markets are expected to see further corrections.
Foreign institutional investors (FIIs) continued to pump money into Indian shares. So far this year, they have invested $8.19 billion with net inflows of $3.2 billion in March alone.Domestic institutional investors continued to remain net sellers of equities, selling shares worth ₹32,583 crore in 2021 so far and ₹4,254 crore in March.
“While the Nifty forward valuation at 21 times price to earnings is higher than long-term averages, it is adequately counterbalanced by lower interest rates (compared with 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," said Rahul Singh, chief investment officer, equities at Tata Mutual Fund.
Singh said higher crude oil prices may affect India’s macro variables such as current account deficit and fiscal deficit when compared with the other emerging markets, putting the country’s premium valuation under threat.
The rupee weakened by 13 paise to close at 72.56 against the dollar on Wednesday. Rahul Gupta, head of research-currency, Emkay Global Financial Services, said covid fear is dampening optimism over economic recovery, which is likely to keep the safe-haven dollar demand intact. “However there is IPO euphoria in the market which is keeping the spot below 73 levels," he said.
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