Dalal Street sees horror at the start of a new week. Factors which pulled markets lower

After an extended weekend, the Indian stock market ended the session on April 18 into the red following weak global cues. At close, the Sensex was down 1,172.19 points or 2.01% at 57,166.74, and the Nifty declined 302 points or 1.73% at 17,173.70. About 1454 shares have advanced, 1990 shares declined, and 135 shares are unchanged.

The IT index tumbled over 4 percent dragged by Infosys which lost 7 percent followed by Mphasis, Tech Mahindra, Mindtree and TCS. The Bank Nifty was down over 1 percent while buying was seen in auto, metal, FMCG and power names.

Vinod Nair, Head of Research at Geojit Financial Services is of the view that the unfavourable start to earnings season in heavyweight stocks of IT and banking sector led to heavy sell-off.

Lower-than-expected results prompted the market to worry about the headwinds faced by IT sector like attrition, wage inflation, lower utilization, and cut in IT spending by industries due to geopolitical and macro issue.

The degree of downfall is high because the sector was trading at high valuation and risk of a downgrade in outlook has increased, he said.

Catch all the market action on our live blog

Here are the factors which are dragging the markets lower:

China GDP 

China has reported a gross domestic product growth rate of 4.8 percent for the first quarter of 2022, as against 4 percent in the fourth quarter. This growth number has come in higher than what was anticipated, given the extent of COVID-related disruptions in March. The growth figures may not fully capture the shockwaves of the COVID lockdowns across several cities which also were economic centres, including Shanghai.

The People’s Bank of China has, over the weekend, also initiated easing measures to reduce the reserve requirement ratio (RRR) for most banks by 25 basis points. However, there have been no rate cuts, and this measure falls short of what several economists were expecting.

Inflation in India

Consumer inflation came in at a surprisingly high 6.95 percent in March versus a CNBC-TV18 economists’ poll that had pegged it at 6.28 percent. Most economists, including those from Citi, HSBC and Kotak have revised their inflation forecasts for the year upward and now see as many as six repo rate hikes in consecutive Monetary Policy Committee meetings starting in June. Citi and HSBC see the repo rate at 5.5 percent by April 2023. The rate is currently 4 percent. The 10-year bond yield, which has surged since the Reserve Bank of India’s April 8 monetary policy announcement, is expected to shoot up to 7.25 percent from the overnight close of 7.17 percent.

IT index falls over 4 percent

The IT index tumbled over 4 percent with top IT names falling as much as 7 percent. Analysts has cut Infosys' margin estimates over its weaker-than-expected earnings for the March quarter. At 9 percent, Infosys had its biggest fall in the market since March 23, 2020. Jefferies India cut its margin estimates by 100-170 basis points to factor the miss and expected 21.9 percent margin in FY22. The brokerage firm Nomura Research expects FY23F EBIT margin to drop 100bp year on-year to 22 percent and lower FY22-24 earnings per share by 5-7 percent primarily on our lower margin expectations.

Oil prices higher

Oil prices rose on Monday as concerns grew about tighter global supply, with the deepening crisis in Ukraine raising the prospect of heavier sanctions by the West on top exporter Russia. Brent futures were up $1.50, or 1.3 percent, at $113.20 a barrel at 0030 GMT, and US West Texas Intermediate futures rose 98 cents, or 0.9 percent, to $107.93 a barrel. The International Energy Agency had warned that roughly 3 million barrels per day (bpd) of Russian oil could be shut in from May onwards due to sanctions, or buyers voluntarily shunning Russian cargoes.

Global markets in the red

US Markets ended lower while bond yields and the dollar rose on Thursday as investors worried about the potential for aggressive US policy tightening as other central banks around the world moved to reduce support. The benchmark 10-year US Treasury yield jumped, following two days of declines, after a flurry of US economic data such as retail sales and jobless claims and the European Central Bank's announcement of less aggressive than expected tightening plans.

Among the Asian markets apart from the Indian indices, Nikkei fell over a percent while Hang Seng added half a percent.

Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​