Weak macro data, rise in global bond yields ahead of the crucial US Federal Reserve monetary policy meeting and partial lockdown in certain states hit investor sentiment driving markets lower on Monday. The BSE Sensex lost 397 down points or 0.78% to end at 50,395.08. The Nifty slipped 101.45 points or 0.67% before closing at 14,929.50.
“Market sentiment were impacted by both global as well as domestic factors. On the global front, US G-Sec yields spiked to 12-month high of 1.62%, and continued to dampen sentiments. On the domestic side, February retail inflation surged to a three-month high while the WPI surged to 27-month high. This along with increase in covid-19 cases weighed on markets,” Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd said.
He feels that while the long term structure of the market continues to remain positive, it may face some hurdles in the near term due to concerns over the bond yields, commodity prices and risk of increase in inflation.
India’s wholesale price index-based inflation surged to a 27-month high of 4.17% in February. Retail inflation in February, accelerated to 5.03% from a 16-month low in January. Factory output data contracted 1.6% in January.
Analysts feel that the macro data suggests economic recovery will take some more time and the central bank may start normalising interest rates due to high inflation.
“The loss of momentum in industrial production reinforces our belief that economic recovery remains at a nascent stage. Downside risk may arise in case broader lockdowns are reintroduced in response to rising number of Covid cases,” said analysts, Kotak Institutional Equities in a note on 12 March. They added that given the upside risk to headline CPI inflation and an adverse global backdrop, Reserve Bank of India (RBI’s) policy normalization (narrowing of the policy corridor and shift in the policy stance to neutral) may begin from second half of 2021.
Meanwhile, the Federal Open Market Committee (FOMC) is due to meet on 16 and 17 March. The US central bank is expected to revise up its GDP forecast, following a $1.9 trillion fiscal stimulus package that will send direct payments of up to $1,400 to most Americans.
The steady inflow of foreign money which has kept stock markets buoyant since March last year depends on the US Federal Reserve’s decision on interest rates.
India has been a huge beneficiary of the huge inflow of foreign institutional money reaching emerging markets especially post the pandemic. For instance, FIIs have bought Indian shares worth $28.350 billion in financial year 2021 so far.