Sensex, Nifty shed over 2% in last 5 days; what spooked investors?
Indian equity benchmark indices Sensex and Nifty declined nearly 2.5% over the last five days, hitting a two-week low, following losses seen in global equity markets. On February 22, the benchmark indices lost around 1.5% each which led investors to lose Rs 3.88 lakh crore in wealth on a single day. The Sensex and Nifty have lost 1.75% and 3.04% respectively, year-to-date.
After outperforming global peers last year, the Indian equity market has remained mostly under pressure this year led by sustained selling by foreign institutional investors (FII) amid a rising interest rate environment globally, jittery global markets and domestic worries.
Here's what spooked investors:
In the current week, the US Federal Reserve as well as the Reserve Bank of India (RBI) released the minutes of the respective policy meetings. The US Fed minutes signalled an easing of inflation, but not enough to see a pause in interest rate hikes.
On the domestic front, the minutes of the RBI’s monetary policy committee (MPC) meeting showed that the rate-setting panel is likely to remain in a tightening mode highlighting the rising concerns over persistent inflationary pressures. The MPC increased the repo rate by 25 basis points to 6.5% on February 8. The central bank has so far raised the key policy rates nu 250 bps since May 2022.
One of the major geopolitical concerns that irked markets worldwide was Russian President Vladimir Putin’s statement warning the West in regard to the war in Ukraine. He also threatened to continue testing nuclear weapons.
Foreign Institutional Investors (FIIs) have remained net sellers in the year 2023 so far. FIIs have sold Indian equities worth $3.37 billion this year. This could be credited to the fact that FIIs are moving funds to cheaper markets with more attractive valuations. The overseas investors had sold around $17.21 billion worth of Indian equities in 2022.
Corporate performance in the third quarter of fiscal 2023 remained modest. The profitability of India Inc in Q3FY23 moderated with the impact largely seen in the commodities and consumption sector. The performance of automobiles and financial sectors was relatively better. Meanwhile, the valuations still seem to remain at the higher end of the historical range.
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In the year 2022, the top 7 cities added over 2.6 million square feet of mall space, 27% more than the previous year. A major contributor to the high volumes and sales was an unrestricted festive season with lessened fears of the pandemic.
The regulator also proposed amendments to the rules related to the underwriting of shares in an Initial Public Offer (IPO) and Follow-on Public Offer (FPO).