Stocks slide on weak Q4 results, inflation
Premium- Prospects of faster RBI policy tightening add to market jitters
- Operating margins of manufacturing firms are under pressure on rising input costs, deepening concerns about companies’ earnings growth
MUMBAI : Investors dumped shares of Infosys Ltd and HDFC Bank Ltd on Monday after the companies reported lower-than-expected quarterly earnings, even as surging wholesale inflation and prospects of faster policy tightening that could undercut the economic rebound made markets jittery.
Benchmark indices Sensex and Nifty plunged 2.01% and 1.73%, respectively.
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“Globally, sentiments remain negative with the dollar index above 100, 10-year US treasury yield above 2.8% and the global economy expected to weaken if the Ukraine war prolongs," said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.
Meanwhile, Infosys Ltd’s shares plummeted 7.27% to ₹1,621.45 on BSE as investors were disappointed with its March quarter earnings.
Earnings were worse than expected, with rising attrition and weakening margins, although the company’s growth prospects appear bright, Vijayakumar added.
Shares of HDFC Bank also fell 4.74% to ₹1,395.35 after India’s largest private lender missed quarterly earnings estimates.
Several other Asian markets also closed lower on Monday.
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Deepak Jasani, head of retail research at HDFC Securities Ltd, said that China’s economic growth accelerated in the first quarter, but the government has warned of “significant challenges" ahead.
Asian markets such as Japan’s Nikkei, Taiwan, and Shanghai Composite Index closed with 0.44%-1% losses. On the other hand, Jakarta Composite and Hong Kong’s Hang Seng rose 0.55-0.67%.
Most European markets were shut because of Easter Monday.
“Major global markets are closed on account of the Easter holiday. However, sentiments remained soured due to the jump in 10-year US Treasury yield and dollar index," said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services Ltd.
Rising inflation and expectations of faster rate hikes by the US Fed also weighed on investor sentiments, added Khemka.
Further, the Japanese yen fell to a new 20-year low against the dollar amid the widening of the Japan-US monetary policy gap.
Meanwhile, wholesale inflation in India accelerated to a four-month high of 14.5% in March. Analysts at Morgan Stanley India said that the March number was much higher than their 13.5% estimate and consensus 13.3% expectations, mainly due to the sharp rise in global commodity prices, including fuels.
Crude oil and natural gas, mineral oils, basic metals, etc., all have risen, led by the disruption in the global supply chain caused by the Russia-Ukraine conflict.
Operating margins of manufacturing companies are under pressure because of rising input costs, deepening concerns about companies’ earnings growth.
“We expect persistent supply-side bottlenecks and high commodity prices to hold the core inflation at double-digit levels in the near term," said Suman Chowdhury, chief analytical officer, Acuité Ratings and Research.
Brent crude bounced back to close to $110 after slipping to less than $100 a barrel on 11 April, adding to concerns about inflation and the Indian currency.
Crude oil has risen in the past one week, with the European Union considering a potential curb on Russian oil imports.
Given the lack of major positive cues, markets are expected to remain volatile in the coming days.
“We expect FY23 to witness continued volatility in equity markets, especially in the first half of the year with rising interest rates globally and high inflation, which is expected to persist," said Naveen Kulkarni, chief investment officer at Axis Securities.
India VIX, or the fear gauge, rose nearly 10%, discomforting bulls, and needs to sustain at a lower level for market stability.
Experts cautioned that near-term headwinds are getting stronger for the market.
Meanwhile, foreign portfolio investors (FPIs) continue to remain net sellers. FPIs have sold ₹1.08 trillion worth of equity this year.
So far, domestic institutional investors (DIIs) have supported the markets well, having bought ₹1.10 trillion worth of shares. Provisional figures on Monday indicated FPI sales at ₹6,487 crore, while DIIs bought ₹3,342 crore worth of equities.