$120 billion wiped out in seven days of Indian stocks meltdown

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Indian equity benchmark index, the Sensex, has dropped by over 2,000 points, and domestic have fallen for seven straight trading sessions as of Monday, leading to investors’ wealth erosion of over $120 billion.

Those losses come after the main benchmarks suffered their worst weekly selloff of the year on worries of aggressive interest-rate hikes.

The Sensex index has dropped 2,031.16 points, or 3.31 per cent, since February 16, with the total market capitalisation of all companies listed on the Bombay Stock Exchange (BSE) down by over $120 billion, or 26 per cent, during this time.

Foreign investors, too, have turned net sellers, pulling out over $23 billion from Indian equities so far this month.

According to Shrikant Chouhan, head of retail equity research at Kotak Securities, investors are cutting their equity exposure due to weak Asian market cues and worsening global macroeconomic indicators such as increasing inflation, rising interest rates, and unpredictable commodity prices.

Still, after steep losses, Indian equity benchmarks eeked out small gains in early trade on Tuesday, driven by month-end flows which lifted sentiment and investors adjusted to expectations of more interest rate hikes.

However, worries about future interest rate hikes to temper stubbornly high inflation continued.

“After trading in red for most part of the trading session, the bulls were seen regrouping helped by mild US dollar selling, and also as European stock markets opened higher,” said Prashanth Tapse, Senior Vice President for Research at Mehta Equities.

“Sentiment remained weak on the back of headwinds such as expectations of higher rates and geopolitical risks,” he added.

What has also added to investor concern is solid US data, which has driven the futures market to price in a higher Fed rate peak.

Indeed, rates are now expected to rise by at least three more 25 basis points rate hikes from their current range of 4.50 per cent to 4.75 per cent, with a 50 basis point increase possible in March, according to Fed futures.
 
According to data released on Monday, US contracts to buy previously owned homes rose to the highest in over two-and-a-half years in January, while core capital goods orders in the world’s largest economy advanced last month, exceeding expectations.

That solid data follows a personal consumption expenditure report that came in much higher than expected on Friday, adding to the growing consensus that the US Federal Reserve will need to maintain its hawkish stance for longer than previously expected.

Vinod Nair, head of research at Geojit Financial Services, said, “bears continued to wreak havoc in the domestic market as the latest data releases from the US heightened the existing worries of aggressive rate hikes.”

“The personal consumption expenditure in the US, which is the US Fed’s key monitorable of inflation, increased in January, pressuring investors to stay away from equities markets,” he added.

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