Indian equity benchmarks Sensex and Nifty faced intense selling pressure on February 28 due to concerns about a full-fledged global trade war.
The Sensex closed 1,414.33 points or 1.9 percent at 73,198.10, and the Nifty ended 420.35 points lower or 1.86 percent at 22,124.70. About 720 shares advanced, 3,125 shares declined, and 83 shares unchanged. Market capitalistion of BSE-listed firms declined a whopping Rs 8.8 lakh crore on February 28 and Nifty has hit 9-month low. Nifty 50 posted losses for the fifth consecutive month in February, its longest losing streak in 29 years.
Here are key factors behind the market decline:
1) Trade war fears: On February 27, US President Donald Trump said that the 25% duties on imports from Canada and Mexico would come into effect on March 4 and not April 2 as he had suggested the day prior. Trump also said goods from China will be subject to an additional 10% duty, heightening fears of an escalating trade conflict.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said: "Stock markets dislike uncertainty, and uncertainty has been on the rise ever since Trump was elected the US president. The spate of tariff announcements by Trump has been impacting markets and the latest announcement of additional 10% tariff on China is a confirmation of the market view that Trump will use the initial months of his presidency to threaten countries with tariffs and then negotiate for a settlement favourable to the US. How China responds to the latest round of tariffs remains to be seen. Even now the markets have not discounted a full blown trade war between the US and China. It is likely to be avoided. However, the uncertainty element has increased as reflected in the sharp spike in CBOE volatility index to 21.13.
"March is likely to witness recovery in the Indian market backed by better macro news flows and subdued FII selling. Since largecap valuations are fair, and in pockets attractive, FIIs are unlikely to press selling as aggressively during the last few months. Long-term investors can utilise the weakness in the market to slowly accumulate fairly-valued quality largecaps and select fairly-valued stocks in the broader market, like defence stocks for instance."
2) Weak Asian markets: Hong Kong equities fell on Friday, and were set to snap a six-week winning streak, as Trump announced fresh tariffs on Chinese imports and investors booked profit on tech stocks. Hong Kong's benchmark Hang Seng slipped 2.3%. Chinese shares also fell, with the blue-chip CSI300 Index dropping 0.8% by the lunch break and the Shanghai Composite Index losing 0.9%.
Japanese stocks saw the largest weekly foreign outflow in nearly five months totaling 1.04 trillion yen ($6.95 billion), hit by a stronger yen, rising inflationary concerns, and uncertainties over Trump's tariff policies.
3) Nvidia Q4 results effect: The Nikkei share average hit a five-month low of 37084.44 on Friday, dragged by chip-related stocks after Nvidia's strong growth forecast did little to lift sentiment.
Overnight, Nvidia tumbled 8.5% after the Silicon Valley company gave a weaker-than-expected quarterly forecast for gross margin that overshadowed an upbeat revenue outlook.
The Hang Seng Index was set to decline 1.3% for the week, after six weeks of gains, as investors took profit on the tech rally.
"The market could use Xiaomi's product launch event and Tencent's new AI launch as catalysts for further profit taking in Hang Seng names on Friday," UBS analysts said.
"Trump's cabinet, especially the members in charge of foreign and trade policies, has exhibited a staunchly hawkish stance towards China," said Ting Lu, chief China economist at Nomura.
Lu expected tensions between the two mega economies to worsen significantly, especially as China continues to make large strides in high tech, including in AI and robotics.
Tech majors traded in Hong Kong slid nearly 4% on the day, after surging nearly 30% this year.
4) US economy fears: The IT index tumbled 4% as data showed that U.S. weekly jobless claims rose more than expected last week, adding to worries that the world's largest economy may be slowing, with inflation expectations surging due to Trump's tariffs.
The IT index has dropped nearly 8% so far this week, compared to a fall of just over 2% in the Nifty 50.
With inputs from Reuters
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