Trade war fears pull down stocks
The stock markets turned hugely volatile on Monday with the Sensex shedding over 2000 points to close below 32000 on negative cues from the global markets and disappointment over the extension of the lockdown in India by two weeks.
The rupee, snapping its four-day winning run, depreciated 64 paise to settle at 75.73 against the dollar amid the selling seen in the domestic equity market.
For investors, the disastrous start to the week came due to fears of a fresh trade war between the US and China that could have adverse implications on global economic growth. This came after the Trump administration said that China should be held responsible for the global spread of the coronavirus.
US secretary of state Mike Pompeo on Sunday said there was “a significant amount of evidence” that the coronavirus emerged from a Chinese laboratory. His comments came after US President Donald Trump last week threatened that he will slap new tariffs on China over the Covid-19 pandemic.
Another factor that hit stock values was the extension of the nationwide lockdown to May 17.
Though the Centre has relaxed some of the restrictions, investors are apprehensive that a revival in the economy will take longer. This came even as North Block continues to dither over a second relief package.
Moreover, corporate results are not expected to be very encouraging as shown by Reliance Industries whose net profit for the January-March period dropped 37 per cent to Rs 6,546 crore, the lowest in three years.
Posting its biggest single-day drop in over a month, the 30-share BSE index settled at 31715.35, dropping 2002.27 points, or 5.94 per cent. The broader NSE Nifty also lost 566.40 points, or 5.74 per cent, to end at 9293.50.
The heavy selloff saw investors being eroded of Rs 5.82 lakh.
“The market sentiments got dampened as tensions flared up between US and China once again with Trump threatening to impose new tariffs on China over the coronavirus. On the domestic front, muted quarterly results, zero sales from auto OEMs, an extension of the lockdown by another two weeks and contraction in manufacturing activity led to profit-booking,” said Siddhartha Khemka, head — retail research, Motilal Oswal Financial Services, said.
He added that prior to the sharp correction witnessed on Monday, Nifty had moved up sharply over the past few weeks by around 30 per cent from its panic bottom of 7500 to closer to 9800 levels. This had made valuations expensive as the fundamentals continued to be weak.
“Earnings season and the management commentaries so far suggest more volatility and disruption in earnings ahead with several Nifty companies seeing fresh double-digit EPS cuts for 2020-21. In the near-term, we expect the market direction to depend upon the spread and intensity of Covid cases, and incremental government/ regulatory actions to restart the economy,” he observed.
In the Sensex pack, ICICI Bank was the top laggard, sinking over 10 per cent. It was followed by Bajaj Finance, HDFC, IndusInd Bank, Axis Bank and Maruti Suzuki. Only two stocks - Bharti Airtel and Sun Pharma - managed to eke out gains.