Benchmarks extend fall for 2nd straight session

Indian equity benchmarks extended their fall for the second straight session on Thursday and ended with losses of over two and half percent as fears over slower economic growth due to rising inflation dented investor sentiment. Markets made a gap-down opening and stayed in red for whole day, as traders were anxious as the United Nations said India is expected to grow 6.4% in 2022, well below the 8.8% growth in 2021, as higher inflationary pressures and uneven recovery of the labour market are likely to curb private consumption and investment. Some pessimism also came as India Ratings and Research said the average headline inflation is set to accelerate to a nine-year high at 6.9 per cent in FY23, and the Reserve Bank may go for more rate hikes during the fiscal. It added that the RBI will hike rates by another 75 basis points and possibly up to 125 basis points (1.25 percentage point) as well if the turn of events and data are very adverse.

Trading sentiments remained subdued in the late trade with a private report stated that equity investors became poorer by over Rs 5 lakh crore in early trade on Thursday as domestic benchmark indices tumbled mirroring weak trends in global equities. Traders were cautious after cooking gas LPG price hiked by Rs 3.50 per cylinder, the second increase in rate this month following the firming of international energy rates. Non-subsidised LPG now costs Rs 1,003 per 14.2-kg cylinder in the national capital, up from Rs 999.50 previously. That apart, selling by foreign institutional investors (FIIs) also added to the pessimism in the markets. FIIs have been net sellers for eight straight months, and have dumped equities worth nearly Rs 38,000 crore in the month of May so far. Traders overlooked Chief Economic Adviser (CEA) V Anantha Nageswaran’s statement that amid global uncertainties caused by the ongoing Russia-Ukraine war, India is still better placed among the large economies because of an improved financial system and a robust corporate health. He said India has already taken a host of reforms in banking and other sectors and is now focussing on stepping up public investment.

On the global front, Asian markets settled mostly lower on Thursday after U.S. retail giants Target and Walmart missed earnings expectations by wide margins and issued back-to-back profit warnings, raising concerns over downside risks to growth. European markets were trading lower as mounting concerns over high inflation and slowing global growth sent investors flocking to the safe haven of the dollar and bonds. Back home, edible oil industry stocks were in focus as Solvent Extractors' Association of India (SEA) said oilmeals export increased by 10 per cent in April to nearly 3.34 lakh tonnes on higher shipments of rapeseed meal. Telecom industry stocks were in watch with a private report that telecom gear makers say that if all goes well, they are ready to roll out the first phase of 5G services from October this year and cover the country’s top 30-50 cities (in limited areas) by March 2023.

Finally, the BSE Sensex fell 1416.30 points or 2.61% to 52,792.23 and the CNX Nifty was down by 430.90 points or 2.65% to 15,809.40.  

The BSE Sensex touched high and low of 53,356.04 and 52,669.51, respectively. There were 3 stocks advancing against 27 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 2.66%, while Small cap index was down by 2.29%.

The top losing sectoral indices on the BSE were IT down by 5.25%, TECK down by 5.11%, Metal down by 4.23%, Telecom down by 3.46% and Basic Materials down by 2.81%, while there were no gaining sectoral indices on the BSE.

The top gainers on the Sensex were ITC up by 3.43%, Dr. Reddy's Lab up by 0.82% and Power Grid Corp up by 0.29%. On the flip side, Wipro down by 6.21%, HCL Technologies down by 6.01%, Infosys down by 5.46%, TCS down by 5.17% and Tech Mahindra down by 5.07% were the top losers.

Meanwhile, expressing optimism over India’s economy, Moody's Analytics in its latest report has said that the country’s economy is back on track after the pandemic and it does not expect the military conflict (in Ukraine) to derail the recovery. Several months into the conflict, fears over the impact have moderated. It said ‘following a robust rebound of over 9 per cent in the year ending March 2022 (fiscal 2021), we expect real GDP to grow 8.2 per cent in fiscal 2022, the fastest expansion among G20 countries globally and partly reflecting ongoing base effects from pandemic-led disruptions’.

The report said the buoyant economy creates favourable operating conditions for the country's banks, besides their loan performance and profitability are improving, albeit from a low base. Capital and liquidity levels are also stable. It added the global economic fallout from the Russia-Ukraine military conflict will push up inflation and interest rates in India, and create supply constraints. India, as an agricultural economy, is a net food exporter but depends on significant agricultural imports such as palm oil. It noted that higher food prices will therefore directly affect inflation, while soaring fuel prices will have an even larger adverse impact. India's Consumer Price Index (CPI) was 6.1 per cent before the conflict and had risen to 7 per cent in March.

However, it said Indian banks are in better shape now than before the pandemic. Loan quality had deteriorated over the prior decade as a large proportion of the banks' corporate lending books turned sour. Corporate stress at that time was linked to multiple factors including slowing economic growth, over-indebtedness and poor governance. Since then, the banks have cleaned their balance sheets and non-performing loans (NPLs) are falling as a result. It added the asset-weighted average of rated banks' gross NPL ratios nearly halved to 5.7 per cent as of December 31, 2021 from a peak of 10.3 per cent at end of March 2018. The report said it expects the NPLs to decline further as banks make recoveries or write off legacy problem debt, while formation of new NPLs will be stable as the economy recovers.

The CNX Nifty traded in a range of 15,984.75 and 15,775.20. There were 3 stocks advancing against 47 stocks declining on the index.

The top gainers on Nifty were ITC up by 3.35%, Dr. Reddy's Lab up by 0.93% and Power Grid Corporation up by 0.37%. On the flip side, HCL Technologies down by 5.80%, Wipro down by 5.78%, Infosys down by 5.18%, TCS down by 5.13% and Tech Mahindra down by 5.04% were the top losers.

European markets were trading lower; UK’s FTSE 100 decreased 177.43 points or 2.39% to 7,260.66, France’s CAC decreased 132.11 points or 2.08% to 6,220.83 and Germany’s DAX decreased 270.64 points or 1.93% to 13,737.12.

Asian markets settled mostly lower on Thursday following a massive sell-off on Wall Street overnight amid growing worries of an economic slowdown. Meanwhile, missed earnings expectations of US retail giants such as Target Corp and Walmart Inc by wide margins, added to fears of a recession. Japanese shares declined as Japan’s April exports growth data fell short of expectations. However, Chinese shares ended with marginal gains amid signs of easing Covid-19 restrictions in the world’s second largest economy.

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