A series of bad news over the long weekend reignited a sell-off in Indian stocks on Monday, sending benchmark indices down nearly 2%, the biggest decline in seven months.
Investor confidence in Indian stocks snapped as Reliance Industries Ltd scrapped a plan to sell a $15 billion stake in its oil-to-chemicals unit to Saudi Aramco, the government repealed farm laws, and shares of Paytm—one of India’s hottest startups—continued their slide since the company’s market debut last week.
On Monday, shares opened little changed but plunged soon, declining for the fourth straight session. The sell-off was seen across sectors, except metals, with the majority of the sectors falling between 2% and 4%. India VIX, or the fear gauge, shot up 17.9% to the 17.5 level. The index is a measure of volatility in the market.
The setbacks come amid stocks worldwide feeling the heat of inflationary pressures, raising concerns that the US central bank may raise interest rates faster than expected, and a resurgence of covid-19 cases in Europe. Analysts also expect the Reserve Bank of India to take policy normalization steps amid higher-than-expected inflation in October.
The BSE Sensex fell 1,170.12 points, or 1.96%, to close at 58,465.89, the sharpest daily decline since 30 April. The National Stock Exchange’s Nifty index also lost 1.96% to 17,416.55, the steepest fall since 12 April. The Sensex fell as much as 2.72% in intraday trading, while the Nifty declined 2.73%.
Mohit Nigam, head of portfolio management service at Hem Securities, said while the end of Reliance-Aramco deal and the dismal listing of Paytm impacted investor sentiment, the roll-back of farm laws has raised doubts over the government’s commitment to economic reforms.
Reliance was the biggest drag on the Sensex, closing 4.4% lower by the end of day.
Paytm has lost nearly 37% in its first two trading sessions, eroding over ₹51,194 crore of investor wealth. The disappointing debut has refocused attention on the Indian stock market’s rich valuation.
Analysts said rising inflation, as well as the pandemic’s surge in Europe, contributed to the market correction. Germany and Austria have gone into partial lockdowns, and the spread in infections even after widespread vaccinations has become a cause for worry for the World Health Organization.
“Globally, the stagflation scenario and re-emergence of covid infection in major countries is putting risk on the economic recovery. Considering the weakness in broader market, we feel the current negative momentum may continue in the near term, but the downside seems to be limited”, said Rajnath Yadav, an analyst at Choice Broking.
Investors are now watching out for global economic data to be released this week and the next. India’s GDP for the third quarter will be released on 30 November. A Bloomberg survey of economists expects India’s GDP for the September quarter at 8.6%.
Globally, the US and euro zone will release manufacturing and services data on Tuesday. Further data from the US, including the Fed minutes from its latest meeting and jobless claims, will be released on Wednesday, ahead of Thanksgiving holidays.
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