The market witnessed a sharp selloff for the second consecutive day with the benchmark indices falling more than 2.5 percent, as nearly 200 stocks hit their 52-week lows and more than 350 scrips hit the lower circuit on June 13.
The Sensex closed 1,457 points, or 2.7 percent, down at 52,847 and the Nifty sank 427.40 points, or 2.6 percent, to 15,774.
Global sentiment was battered given the spike in US bond yields and a jump in the US dollar index, indicating that there may be more than the pencilled-in 50 basis point (bp) hike in funds rate by the US Federal Reserve this week, especially after inflation there came in at 8.6 percent, the highest since December 1981. The Federal Open Market Committee will come out with its two-day outcome on June 15 night.
Caution was also seen ahead of Consumer Price Index (CPI)-based inflation data due later in the day, which is germane data for the Reserve Bank of India (RBI) to decide its course of action on rate hikes.
The RBI joined global central banks’ path of policy tightening in April and since then it has raised its policy repo rate, at which banks borrow money from the RBI, by 90 bps to 4.9 percent, and experts feel that it can go up to 6 percent in the second half of 2022.
The Ukraine-Russia war, the key reason behind the spike in commodity prices including oil that traded around $120 a barrel, and which is a major source of discomfort for oil importers including India, has dampened sentiment for nearly four months now.
“The US Inflation rate came in at 8.6 percent, which is a 40-year high. US 10-year bond yields are around 3.187 percent. Hence there is a huge gap of around 5.4 percent percentage points between the two,” said Sandeep Bhardwaj, CEO, IIFL Securities.
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He added that to bridge the gap, the US central bank will have to tame inflation by increasing interest rates.
“If the 10-year bond yields in the US increase to 5 percent, we would see balance sheets getting stretched for many companies. The yields on US two-year treasuries have passed 3 percent and now are trading at the highest level since 2007, and its gap with the 10-year yields is now less than 5 bps, making a case for a sharp downturn in equities," Bhardwaj said.
In the last 100 years, almost all recessions have been preceded by a rising US dollar, rising interest rates and rising crude oil prices. This time, too, the scenario is the same, Bhardwaj said.
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Overall, 194 stocks hit their 52-week lows on June 13, and more than 350 stocks touched the lower circuit against 200 stocks tripping the upper circuit. Even the market breadth was very weak as five shares declined for every rising share on the BSE.
Bajaj Finance, Bajaj Finserv, RBL Bank, Shree Cements, Tata Steel, UltraTech Cement, Aavas Financiers, Astral, Mrs Bectors Food, Birla Corporation, Can Fin Homes, Coforge, Equitas Small Finance Bank, Gujarat Gas, Hikal, Indiabulls Housing Finance, ICICI Lombard General Insurance, Ipca Laboratories, Just Dial, LIC Housing Finance, Lux Industries, Muthoot Finance, NBCC, NMDC, UTI AMC, Vakrangee and V-Mart were among ‘A’ group stocks that touched 52-week lows.
In the ‘B’ group, stocks that hit their year’s lows included Aarti Surfactants, Aditya Birla Sun Life AMC, Balaji Telefilms, BL Kashyap, Emkay, HKG, HT Media, Jagran Prakashan, JSW Ispat Special Products, Kaya, KIOCL, Kokuyo Camlin, Latent View, Nuvoco Vistas Corporation, Paradeep Phosphates, Quick Heal Technologies, STC India, Tide Water, and Vijaya Diagnostic.
More than 350 stocks hit the lower circuit but it did not include a single stock from the ‘A’ group. GG Engineering, Pearl Polymers, Mawan Sugar, Orient Green Power, Rajnish Wellness, Rajshree Sugars, Shah Alloys, BPL, A2Z Infra, Bang Overseas and Ankit Metal were amongst the ‘B’ group stocks that hit the lower circuit.
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All sectors participated in the bears’ party, correcting in the range of 1-4 percent. The BSE Information Technology was the biggest loser, falling 4 percent, followed by Metal, Finance, Bankex which declined more than 3 percent each.
The broader markets were also caught in a bear trap as the BSE Midcap and Smallcap indices fell 3 percent each.
Foreign institutional investor (FII) selling has been one of the key factors keeping bears active for more than eight months now. Bulls had tried hard several times but failed to attain the record highs touched by the benchmark indices in October last year.
FIIs have net sold more than Rs 2.44 lakh crore worth shares in the current calendar year, which domestic institutions managed to offset to a major extent, buying shares worth around Rs 1.97 lakh crore during the same period.
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