India’s stock indices reeled under sustained selling pressure for the third consecutive session on January 6, with the 30-pack BSE Sensex down 453 points, or 0.75 percent, at 59,900 and the Nifty down 133 points, or 0.74 percent, at 17,859.
The markets were still adjusting to the Federal Open Market Committee minutes that came out on January 5. Negative developments in the Russia-Ukraine war and the Reserve Bank of India governor’s comments on inflation in South Asia added pressure. Also, global cues didn’t provide much comfort. The Indian indices opened flat and soon came under extensive selling pressure.
Let’s look at what caused the decline on the last day of the week:
Ukraine rejects Russia's ceasefire offer
The Russia-Ukraine conflict has been one of the major reasons for turmoil in the global economy and markets. Russian President Vladimir Putin had offered a ceasefire, which was rejected by his Ukrainian counterpart Volodymyr Zelensky. This rejection is viewed as a signal that the war will continue and destabilise the world order, which is bad news for the global equity markets.
Comments from RBI Governor
RBI governor Shaktikanta Das, speaking at an IMF event in New Delhi, expressed concern over the inflationary situation in South Asia, which has dampened the region’s growth prospects. He said South Asian economies face sustained price pressures and inflation must be tamed. Das said global trade and economy look uninspiring and external debt was impacting the macroeconomic stability of the region. His views further dented investor confidence.
US Fed remains hawkish
The global markets expected some positive commentary from the FOMC. However, the US Fed did not offer any and maintained its stance of continuing to raise interest rates in order to contain inflation. The markets, which anticipated a pause in rate hikes, were in for a surprise as the Fed maintained that interest rates will remain elevated for longer. This has not been taken well by the markets.
Continued FII selling
Foreign institutional investors have relentlessly pulled out money from the Indian markets – sucking out more than Rs 10,500 crore in the past nine sessions.
“While worries over global economic slowdown due to rising interest rates and falling demand continue to weigh, FIIs too have been deserting local markets over the past week,” said Prashanth Tapse, senior VP (research), at Mehta Equities. FIIs sold shares worth Rs 1,450 crore on January 5 while domestic institutional investors sold Rs 194 crore worth of equities.
High valuations
High valuations of Indian stocks were also a cause of concern.
“Clearly, FII money is chasing lower valuations by selling in overvalued markets like India. This trend might continue imparting weakness in the Indian market,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
Economic data
Investors also exercised caution ahead of US inflation data, which is due next week, as well as domestic inflation data. Any increase or variation from expectations will vindicate the US Fed’s stance of keeping interest rates higher and will continue to negatively impact the equity markets.
Investors will also look at third quarter earnings, which will start pouring in on January 9. Strong earnings and positive management commentary might help to reverse some trends. Till then, experts advise caution before the market gains a clear direction.