Rs 3.54 lakh crore of investor money gone! What’s spooking Dalal Street? 6 factors

Both the benchmark Sensex and Nifty indices lost nearly 0.8% each at 10.50am. So far this year, both Sensex and Nifty lost around 0.9% and 2.14% respectively.

Indian markets on Wednesday dropped for the fourth session to hit over two-week low tracking losses in global equities. Both the benchmark Sensex and Nifty indices lost nearly 1.34 percent each at 1.40 pm with investors losing around Rs 3.54 lakh crore in wealth. Both Sensex and Nifty lost around 1.46 percent and 2.71 percent so far this year

Among the global markets, S&P500 and Dow Jones lost 2 percent each while Asia Nikkei fell 1.4 percent and Heng Seng slipped 0.3 percent.

With the release of recent macroeconomic data, investors will now closely monitor the geopolitical developments on the Russia-Ukraine front for further cues. The ongoing tensions between Russia and Ukraine have the potential to impact global markets, particularly if the war intensifies as Putin hardens his stance. Investors will also watch minutes from the US Fed and RBI due later on Wednesday for further cues on the trajectory of rate hikes.

Factors that led to the fall in Indian markets:

Putin’s nuclear warning: On Tuesday, Russian President Vladimir Putin issued a warning to the West regarding the situation in Ukraine. In an alarming move, Putin suspended a crucial nuclear arms control treaty, disclosed the deployment of new strategic systems on combat duty, and threatened to resume nuclear tests. This development was met with criticism from US Secretary of State Antony Blinken, who described it as “deeply unfortunate and irresponsible.” Nato Secretary General Jens Stoltenberg also expressed concern, stating that it would make the world a more dangerous place, and called on Putin to reconsider his decision.

Fed minutes: Global markets are on edge as investors brace themselves for the release of the Federal Reserve meeting minutes later on February 22. There is concern that the minutes will show US policymakers remaining resolutely hawkish, which has led to a drop in market sentiment. The minutes are expected to reveal how many members saw the case for a larger hike at the January 31 to February 1 meeting, and whether they anticipated the need to raise interest rates higher than previously thought to tackle inflation. This comes as the recent US producer price index rebounded more than expected in January, leading to talks about the need for further interest rate hikes in the coming months. Investors are closely monitoring the Fed’s stance on interest rates and inflation, as it could have significant implications for the global economy.

RBI minutes: The Reserve Bank of India is set to release the minutes of its February rate-setting panel meeting later on February 22 and investors are keeping a close watch on them for cues on the trajectory of rate hikes. The minutes will provide insight into the RBI’s decision-making process and may give an indication of whether there will be any further rate hikes in the near future. Additionally, investors will be paying attention to RBI Deputy Governor Michal Patra’s speech at the first G20 Finance Ministers and Central Bank Governors meeting and the second G20 Finance and Central Bank Deputies Meetings for any clues on potential rate hikes.

Adani Group saga: On Wednesday, the four-week-long selloff of Adani Group stocks resumed, which was initially triggered by a report from US short-seller Hindenburg Research. The Adani group’s market capitalisation has fallen by around $142 billion since January 24, and there are few signs of the downward trend easing. Adani Transmission, Adani Total Gas, and Adani Green all dropped by the daily limit of 5 percent. These three stocks have been the biggest decliners among the group since the selloff began on January 25. The group’s flagship stock, Adani Enterprises, also fell as much as 8.3 percent, hitting its lowest intraday level since February 6. This sustained selloff is causing concern among investors and is likely to have a significant impact on the Indian stock market. Despite the Adani Group’s denial of the allegations made by Hindenburg Research, the fallout from the report is expected to continue to affect the group’s stocks in the days and weeks ahead.

FII selling: Foreign investors have been selling Indian equities since the start of the year, with sales amounting to around $3.37 billion so far. In 2022, they liquidated around $17.21 billion worth of Indian equities. However, there are signs that this trend may be reversing, as foreign investors started buying Indian equities last week. Some analysts believe that this renewed interest in local equities is due to the attractive valuations on offer. Despite concerns about the Adani Group and rising inflation, the Indian stock market remains attractive to foreign investors. The recent buying activity by foreign investors suggests that they are optimistic about the prospects for Indian equities in the coming months. Nevertheless, the Indian economy still faces challenges, and it remains to be seen whether the recent uptick in foreign investment will be sustained over the long term.

December quarter earnings: India Inc’s profitability moderated in the third quarter of FY23, with corporate earnings coming in below analysts’ expectations. The underperformance was driven by the commodities sector, while financials and autos performed relatively well. The slowdown in consumption was broad-based, affecting both staples and discretionary spending, and this also had a negative impact on corporate earnings. However, analysts remain cautiously optimistic, with expectations that the good Rabi harvest and declining CPI inflation will gradually boost demand for staples. A Motilal Oswal Research report indicated that 57 percent of the companies in their universe either met or exceeded profit expectations, suggesting a decent spread of earnings across sectors.


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