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Markets to see worst monthly fall since May

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Indian markets ended lower on Friday, registering the third consecutive week of decline, as a deadly wave of coronavirus infections cast a cloud over business recovery. The BSE Sensex slipped 202.22 points or 0.42% to end at 47,878.45, while the Nifty dropped 64.80 points or 0.45% before closing at 14,341.35.

Markets lost 1.9% for the week, the worst weekly fall since 28 February 2021. In April so far, both benchmark indices Sensex and Nifty are down around 3%, and are poised to see the worst monthly fall since May 2020.

Markets lost 1.9% for the week, the worst weekly fall since 28 February 2021

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Markets lost 1.9% for the week, the worst weekly fall since 28 February 2021

“Markets continued to remain extremely subdued with losses during the course of the whole week, across sectors and segments. The main reason for the downtrend is the rising cases of the virulent pandemic which is causing unimaginable damage to human life across larger states,” Joseph Thomas, head of research, Emkay Wealth Management said.

He added that while governments and healthcare systems are battling the virus, it may take some time before there is improvement.

According to Thomas, it is too early to assess the damage, which is why even the markets have not reacted sharply so far.

But the probability of the resurgence impacting growth and therefore, earnings, is quite high for the first two quarters of this year.

Foreign institutional investors (FIIs) continue to sell Indian equities, dumping $934.27 million worth of shares in this month so far. As US President Joe Biden is seeking an increase in the tax on capital gains to 39.6% from 20% for Americans earnings more than $1 million, it may be mildly positive move for FII flows to emerging markets like India, said analysts.

Rusmik Oza, executive vice president and head of fundamental research at Kotak Securities said, “Indian markets succumbed to FIIs’ selling this week on account of the sharp rise in covid cases. Fresh lockdowns and restrictions being imposed by various state governments will impact demand and also business activity. The persistent rise in hard commodity prices is a threat which could weigh on margins of many manufacturing companies. Too many potential negatives have come together, which could impact markets in the very near future.”

India volatility index, or India VIX, dropped nearly 1.45%, ending at 22.69 on Friday.

However, analysts believe that markets are expected to remain volatile until there is a reversal in covid-19 cases.

“Enhanced economic restrictions imposed by states and the government’s continued focus to increase supply of vaccines and allowing vaccines at private hospitals should be able to check spread of coronavirus in coming weeks. Further, despite putting enhanced mobility restrictions, manufacturing and infrastructure activities have not halted yet and companies appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities,” said Binod Modi, head of strategy at Reliance Securities, the broking arm of Reliance Capital.

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