The Indian markets on Wednesday posted their biggest single-day fall in nearly a month as the resurgence of coronavirus sparked concerns about the pace of economic recovery.
Fresh lockdowns in Europe and the possibility of an increase in tax rates in the US impacted investor sentiment towards risky assets. Foreign investors pulled out nearly Rs 2,000 crore from Indian equities on Wednesday.
The Nifty ended the session at 14,549 with a decline of 265 points, or 1.8 per cent, while the Sensex fell 871 points, or 1.7 per cent, to close at 49,180. In percentage terms, this fall was the most since February 26, when the benchmark indices had crashed nearly 4 per cent amid rising US bond yields. Also, the closing levels for the Sensex and the Nifty were the lowest in nearly a month.
About Rs 3.27 trillion of investor wealth was wiped out on Wednesday as the markets witnessed massive selling pressure.
The health ministry said it had found a new double mutant Covid-19 variant in several states and Union Territories. India recorded 47,262 new cases and 275 deaths since Tuesday, the highest in 2021.
Investors feared that the rise in Covid cases and restrictions in India could hurt the pace of economic recovery and delay the re-employment of millions who lost their jobs during the pandemic.
"A sharp rise in new Covid-19 cases in Maharashtra, which contributes over 13 per cent of India's GDP and about 20 per cent of the country's industrial output, is certainly a matter of concern. However, given the experience of 2020, the spread can be controlled without putting large-scale business restrictions by the administration. Additionally, a faster roll-out of the vaccination process can be helpful to contain the spread of the virus," said Binod Modi, head of strategy at Reliance Securities.
Analysts said the economic outlook would be tied to the spread of the virus. If Covid-19 cases continue to rise, it will cost the economy, and the impact on growth will be felt in the April-June quarter, they warned.
Global markets also traded weak on Wednesday as sentiments were dampened after Germany, France, and Italy widened virus-related curbs amid a rise in infections.
“Markets have had a great run and have not seen a 10-per cent plus correction since May. So markets were looking for an excuse to correct. Markets are concerned that there could be lockdowns. Though we are going through the second wave of infections, it is much more muted, and secondly, vaccination is happening, we will not have a major lockdown. It will be good for markets if they consolidate. A bit of price and time correction will make the markets a little cheaper and healthier," Jyotivardhan Jaipuria, founder, Valentis Advisors, said.
On Tuesday, the World Health Organization head called the recent increase in deaths and cases as truly worrying trends. Oil prices fell as the lockdown measures in Europe brought in uncertainties regarding the recovery in consumption.
The 10-year US bond yield also fell after Federal Reserve Chairman Jerome Powell reassured that the rise in inflation over the year would be "neither particularly large nor persistent".
The market bread was negative, with 2,115 stocks declining against 842 stocks advancing. Barring two, all Sensex stocks fell. M&M was the worst-performing stock and ended the session with a decline of 4 per cent. SBI, Axis Bank, and ICICI Bank each fell more than 3 per cent, while index heavyweight Reliance Industries declined 2 per cent.
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