Mirroring the meltdown in key markets worldwide, India’s equity market registered its second biggest fall of 2024 (the first being the general elections result day of June 4) as a host of negative global cues weighed down heavily on investors’ sentiments.
From concerns related to an appreciating Japanese Yen and its impact on the global economy to looming fears of the world’s biggest economy- the USA - sliding into a recession, there were just way too many factors that allowed the bears to take over full control of an ‘expensive’ Indian market. The ongoing tension in the Middle East and India Inc. putting a below-par June quarter earning show added fuel to the fire.
The BSE Sensex nosedived 2,222 points or 2.74% on Monday to close at 78,768.42. The index plunged more than 3% intraday to hit the day's low of 78,588. The NSE Nifty50 cracked 662 points or 2.68% to settle at 24,055. It plunged as much as 3.33% to hit the day's low of 23,893. The broader market underperformed the benchmarks, with the Nifty Midcap 100 and Smallcap 100 indices falling by around 3.55% and 4.57%, respectively.
Investors lost a whopping Rs 15 lakh crore in the single session as the overall market capitalisation of the firms listed on the BSE dropped to nearly Rs 442 lakh crore from nearly Rs 457 lakh crore in the previous session. The fear index, India VIX, ended at a record high of 20.37 points, up 42.23%. This indicated volatility to continue in the coming session as well.
The selling pressure was so intense that 45 out of the 50 Nifty stocks closed in red, with Tata Motors, ONGC, Adani Ports, Tata Steel, and Hindalco being the top laggards, each falling more than 7%. In the 30-share Sensex pack, 28 shares ended lower. Only two FMCG stocks, Hindustan Unilever and Nestle India, closed in green.
Bank of Japan's decision to hike interest rates has triggered a ripple effect across global markets
Explaining the Yen carry trade on the markets, Amit Goel, Co-Founder & Chief Global Strategist, at Pace 360, said that the Bank of Japan's recent decision to hike interest rates has triggered a ripple effect across global markets, including India. He added that while the direct impact on FPI flows, especially from Japan, might be limited due to their relatively small share, the yen carry trade, where investors borrowed cheaply in yen to invest in higher-yielding assets, is likely to unwind. The unwinding of carry trades can increase volatility in currency markets, including the yen and the rupee.
“Additionally, a shift in the global monetary policy stance, including the BOJ's rate hike, can create a risk-off environment. This could lead to a decline in FPI flows into emerging markets as investors seek safer haven assets. Moreover, while Japanese FPIs constitute a small portion of overall FPI flows, the rate hike might reduce their incentive to invest abroad due to potentially higher borrowing costs,” said Goel.
JPY, which many used as a cheap funding source has been appreciating strongly in the past few days and moving 7% in the last 3 days and down 12% from the top.
Meanwhile, Sandeep Bagla, CEO of TRUST MF, said that the employment data in the US has turned particularly weak, sparking off expectations of a recession-like scenario in the US. Stock markets which are linked to the US economy are witnessing sharper correction. He added that while the possibility of a US recession is bad for equity market sentiment in general, and will lead to corrections across equities across the global markets, the markets where the domestic economy is stronger can be expected to rebound faster than others.
Whereas, Tanvi Kanchan, Head - UAE Business & Strategy, Anand Rathi Shares and Stock Brokers said that this sell-off is more of a short-term volatility by way of profit booking and is no indicator of any long-term panic mode set in the Indian equities. For investors looking at entering the equity market, a staggered entry during volatile periods can be considered, added Kanchan. Among the global market, Japan’s Nikkei closed 12.4% lower on Monday. USA’s S&P 500 futures was down around 3% and Nasdaq was lower by 6%. In the Crypto market, Bitcoin fell 12.7% and Ethereum was down 19% intraday.
Anup Kurup, CIO (Chief Investment Officer), InCred Global Asset Management, said that some likely short-term causes are,
Positioning in the derivative markets with many players selling volatility across many asset classes. A big move up in VIX on Friday after the disappointment in the jobs report would have likely triggered margin calls on the short-volume of strategies which were mushrooming off late.
Rumours of a hedge fund blow up in Japan this morning.
Vinod Nair, head of research, Geojit Financial Services said that the Indian market had showcased a solid track record of outperformance compared to the global market, in the long term.
This trend is expected to stay as GDP growth is forecast to be robust for the decade aided by progressive policies, fiscal prudence, and a favourable political landscape, added Nair.
