Nifty, Sensex slump for second session, 6 factors driving the sell-off

Indian equity benchmarks extended losses on April 25, with the BSE Sensex and the Nifty50 sliding over a percent each.

The losses were driven by weakness in shares of information technology and fast-moving consumer goods (FMCG) companies. The Nifty IT index fell over 2 percent while the Nifty FMCG index slumped more than 1.5 percent each.

"Aggressive Fed tightening, COVID-related lockdowns in China and the Ukraine-Russia war are the three main themes haunting global markets at this point," IFR Global said in a note.

Today, the Nifty ended down 218 points, or 1.3 percent, at 16,953,95, while the Sensex was at 56,579.9, down 617.3 points or 1.1 percent.

Here are the major factors that drove the stock market lower:

1 Weak global cues

The sharp sell-off in US markets on April 22 that saw Dow Jones Industrial Average register its biggest single-day fall since 2020 unnerved investors. Other Asian markets led by China and Hong Kong also plummeted in early trades to drag sentiment among investors, which was skittish after the dramatic selloff on April 22.

2 COVID-19 storm in China

The world's second-largest economy and the biggest driver of growth is seeing a worsening coronavirus outbreak that has hit the country since late February.

China's zero COVID-19 policy has resulted in a strict lockdown that has hamstrung industries and consumption, raising concerns that a slowdown in the Chinese economy could hit global growth and exports.

3 Inflation concerns

The focus is back on inflation after Indonesia banned the export of crude palm oil, a key ingredient in the manufacturing of everyday consumption items—from spreads to shampoo.

With retail inflation in India already hovering around the 7-percent mark amid weak impulses from consumers, the expected spike in food items caused by the Indonesian ban would worsen the market’s assessment of how aggressively the Reserve Bank of India will raise interest rates.

4 A 50-basis-point hike coming

In that vein, equity investors are increasingly concerned that the US Federal Reserve will raise interest rates by 50 basis points at the rate-setting meeting next week and may follow up with a similar increase in June.

US Federal Reserve Chairman Jerome Powell’s comments on April 21 that a 50 bps hike may be required to tame multi-decade inflation has made that development more certain.

5 Russia-Ukraine war

With the Russia-Ukraine war in its second month, the worst-case scenario for the equity market is playing out, said analysts. A prolonged war was seen as detrimental to equities as it will further delay the normalisation of supply chains that have stoked inflation and haunted businesses.

Further, fears of more sanctions against Russia will continue to keep global crude oil prices above the $100-a-barrel mark, which is a negative for domestic economic recovery, with India importing more than 80 percent of its fuel requirement.

6 Incessant FPI selling

A major driver of the weakness in the domestic stock market has been the incessant selling by foreign portfolio investors who are on track to mark the seventh straight month of net outflows.

So far, FPIs have withdrawn more than Rs 2 lakh crore from the domestic market since October, led by concerns over rate hikes by the US Federal Reserve and a general tightening in global financial conditions.

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