Indian equity markets posted their biggest single-day drop since May after a global selloff in risk assets, sparked by surging U.S. bond yields, marred sentiment.
The Sensex ended 3.8% lower at 49,099 on Friday. The 30-stock index fell more than 2,000 points intra-day and eventually ended with losses of 1,939 points. The Nifty 50, too, lost more than 550 points, ending the day 3.8% lower at 14,529.
This is also the second straight weekly decline for the benchmarks.
“What we are seeing in the global markets is a knee-jerk reaction to the rise in global bond yields,” Rusmik Oza, executive vice-president and head of fundamental research at Kotak Securities, said in an emailed statement to BloombergQuint.
Sector-Wise Snapshot
All the sectoral indices ended with losses on Friday.
Nifty Bank was the biggest loser, ending 1,745 points down. That was the biggest single-day drop for the gauge since May last year.
Nifty Auto posted its biggest intra-day fall in two months.
For the week, while the benchmarks posted their worst weekly performance in a month, broader markets outperformed. The Nifty Midcap and Nifty Smallcap indices ended with gains of less than 1% for the week.
Nifty Metal was the outperformer during the period, despite Friday’s fall. The index has risen 7.6% for the week ended Feb. 26. That’s its fourth straight weekly gain.
On the other hand, all the 10 constituents of the IT index posted losses, led by Tech Mahindra Ltd., Tata Consultancy Services Ltd. and L&T Infotech Ltd.
Volatility Trend
The India Volatility Index or VIX ended 22.9% higher on Friday — the biggest single-day jump in two months. The closing level of 28.14 was the highest since June 2020.
While Oza expects Indian equities to bear the brunt of the global correction in the near term, he highlighted three reasons why they can recover and standout.
“India’s V-shaped recovery can be stronger than other economies because of the severe lockdown we went through last year.”
The low base caused due to last year’s lockdown will provide very high earnings growth for the next three quarters.
India has added more than $100 billion in forex since pre-Covid times due to which the Reserve Bank can be in a better position to handle any currency weakness being caused by the rising bond yields and potential FPI outflows.
Oza also expects a stable currency, strong economic growth and a sharp rise in earnings to help India sustain any global correction due to inflation and rising bond yields.
The Silver Lining
Despite the decline on Friday, the Sensex and Nifty posted their best February in two decades.
While this was the best for the Sensex since 2002, for the Nifty, it was the best since 2000.
The Nifty Midcap, Nifty Smallcap, Nifty Bank, Nifty Metal, Nifty PSU Bank and Nifty Realty posted the best gain in a month of February since their respective launches.
But Nifty FMCG posted losses in a month of February for the fourth straight year.
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