Wednesday was the fourth straight day of fall for domestic stocks, as a slew of healthy economic data in the US has raised fears the US Federal Reserve has room to carry on with its rate hike cycle for an extended period of time. A sharp selloff in Wall Street overnight hit shares in Asia earlier today, weighing on the domestic sentiment.
Sensex dropped over 550 points while Nifty tested sub-17,700 levels in the morning trade. The BSE market capitalisation slipped Rs 2.79 lakh crore to Rs 262.41 lakh crore from Tuesday’s Rs 265.21 lakh crore.
Here’s what led to market fall today:
Wall Street rout
US stocks recorded their worst performance of the year overnight, with key indices falling up to 2.5 per cent after a rebound in US business activity in February suggested interest rates will need to stay higher for longer to control inflation. The Dow Jones Industrial Average fell 697.1 points, or 2.06 per cent, to 33,129.59, the S&P500 index lost 81.75 points, or 2 per cent, to 3,997.34 and the Nasdaq Composite index dropped 294.97 points, or 2.5 per cent, to 11,492.30.
“US stocks are declining after retail earnings suggest margin worries are here and it will only get worse as the Fed is likely to deliver more tightening into early summer. Treasury yields are surging here as a tight labor market will force the Fed to do more tightening,” Senior Market Analyst at The Americas OANDA.
Fed minutes
Investors globally were keenly awaiting the Fed minutes of the recent policy review scheduled for later in the day. The main theme over the past couple of weeks has been around US data surprises which have caused some investors to reassess the medium-term outlook, Nomura said this week.
“US hard data has been resilient, but inflation has picked up leading to the narrative of ‘no-landing’. Peak rate expectations have risen significantly since strong US NFP which has also led to renewed dollar strength and higher US bond yields – both not good for Asian stocks in general. In the near term, Asian stocks will unlikely like this uncertainty and thus we expect some volatility until a trend in the data is formed again,” Nomura said on February 20.
Technical levels
Analysts had noted that the levels of 17800–17700 were a sacrosanct support zone. The range has been broken intraday today, with Nifty slipping to a low of 17,652.60. On the flip side, the range of 17,900–18,000 was seren as a stiff hurdle. Sameet Chavan of Angel One noted that the index needed to surpass the range with some authority for any broad based rally.
“The entire February month has been into a consolidation phase and very soon prices may break these shackles. Traders are waiting for some triggers, with key events lined up on the global front,” Chavan said.
Dollar rise, weakness in Asia
The dollar index, which has an inverse relation with equities, stood firm at 104 level in Wednesday’s trade. Data showed FPIs have sold domestic equities worth Rs 31,132 crore. A firm dollar leads to foreign outflows from risky assets such as emerging market equities.
Most Asian markets were trading lower ahead of the Fed minutes. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.92 per cent. Japan’s Nikkei dropped 1.51 per cent; Australia’s ASX 200 declined 0.24 per cent; New Zealand’s DJ shed 0.68 per cent; Hong Kong’s Hang Seng retreated 0.47 per cent; and Korea’s Kospi tanked 1.34 per cent. China’s Shanghai slipped 0.40 per cent.
Q3 results season
The December quarter results season saw marginal downgrades in EPS estimates for FY23 and FY24. Motilal Oswal Securities has trimmed its FY23E Nifty EPS by 1 per cent to Rs 812 from Rs 820 earlier due to notable earnings downgrade in the metals stocks.
BOB Capital Markets noted that Q3FY23 was a tepid quarter that saw Nifty 50 earnings rise 11 per cent YoY led by the BFSI sector. Investment-led sectors such as capital goods and cement posted a healthy topline while consumption-driven sectors such as FMCG and durables found their pricing abilities put to the test.
“Broader commentary across sectors highlights the same old challenges that have been plaguing India Inc for the past few quarters. While commodity prices have corrected from peaks, they remain elevated. Inflation is eating into demand and rural offtake remains modest. The chip shortage is another persistent problem, impacting sectors from auto to durables and capital goods,” it said.
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