Why is the Indian Stock Market Falling?

After heavy selling on Monday, the Indian share markets weakened further today led by a decline in global equities.

Renewed concern over the pandemic with the rapid spread of the delta variant took a toll.

Equities fell modestly in Japan and China where banks kept the benchmark loan rate steady, while equities in Hong Kong were little changed.

Overnight, US stock markets had closed 2% lower.

The selling picked up as the session progressed and at one point, the Dow Jones Industrial Average was down 946 points, having its worst day since last October.

The Nasdaq Composite slid 1.1%, posting its fifth-straight day of losses and worst losing streak since October.

Let's have a look at the top factors behind the market sell-off.

Why did the markets fall today?

Virus scare

Covid cases are rising in the US and UK due to the new Delta variant.

The US is averaging nearly 26,000 new cases per day in the last seven days through Sunday, up from a seven-day average of around 11,000 cases per day a month ago.

Countries like Australia have extended restrictions as the variant continues to spread.

US infectious disease expert Anthony Fauci has said the Delta variant has been detected around 100 countries globally and is now the dominant variant worldwide.

Many countries, particularly in Asia, are struggling to curb the highly contagious Delta variant and have been forced into taking lockdown measures.

Mixed results

India's largest private lender HDFC Bank fell as much 2% today after missing expectations for quarterly profit.

This was on top of the 4% fall in HDFC Bank shares seen on Monday.

As asset quality of HDFC Bank deteriorated marginally in April-June quarter due to disruptions in collections due to second wave, there is a growing concern about the deeper pandemic impact on the economic.

Shares of IT company HCL Technologies also fell over 3% after its quarterly revenues missed expectations.

On the other hand, ACC shares rose 8% after reporting a two-fold jump in consolidated net profit for the quarter ended June 2021.

Big companies Asian Paints and Bajaj Finance are scheduled to announce their earnings later in the day.

Valuation and FII impact

Indian and US share markets were trading at high valuations before the start of this week.

According to experts, stock markets had gone too far too soon pushed by earnings effect and signals of a recovery in the global economy.

Another factor can be FPI selling. Foreign portfolio investors (FPIs) have offloaded Indian equities worth Rs 49.4 bn in July so far, according to data available with NSDL.

This is in contrast to June this year when they bought equities worth Rs 172.2 bn.

Rupee approaches 75

The Indian rupee dropped to its lowest level in three months on Monday.

The rupee ended at 74.88 per dollar, compared with its close of 74.56 on Friday. The currency fell 0.4%, its biggest single-day fall since 17 June.

Today, the domestic currency depreciated 7 paise to 74.95 in opening trade as firm American currency and weak domestic equities weighed on investor sentiment.

According to experts, two opposite forces are at work to keep the Indian rupee trading on a narrow, stable course.

Foreign money poured in for the initial public offering (IPO) of Zomato IPO, which marks a pipeline of more big-name IPOs.

At the same time, the US dollar is gaining strength against emerging markets currencies after the Federal Reserve indicated at least two hikes by 2022.

Back in March 2021, ace chartist at Equitymaster, Brijesh Bhatia had discussed about rupee depreciating to levels of 80 against the US dollar.

In the video, Brijesh explained why he thinks there is a possibility of the rupee falling to 80 against the dollar in 2021.

Global inflation concerns and rising bond yields

Global markets were already nervous about the sharply-rising inflation. Now, this is combined with worries about the Delta variant too.

Inflation fears weighing on stocks after the consumer price index in the US last week showed that inflation jumped 5.4% in June YoY.

Separately, a US consumer sentiment index from the University of Michigan released on Friday showed that consumers believe prices will jump 4.8% over the next year. This is the steepest climb since August 2008.

Bond yields also turned higher today. The 10-year yield rose to 1.2087% from a close of 1.181%, a level last seen in February.

Equitymaster's technical view

We reached out to Brijesh Bhatia, Research Analyst at Equitymaster, and Editor of the premium monthly recommendation service Fast Profits Report, for his technical view on the markets.

Here's what he has to say...

• The bears winning the game as bulls fail to surpass 16,000 levels for five times taking back to 15,600 zone.
  
  The range of 15,400-16,000 prolongs on Nifty even after global equity indices witnessed selling pressure in last couple of trading sessions.
  
  The euphoria in midcap and small cap stocks will outlive and dips will attract investors from short to medium term.

 

Brijesh regularly posts updates regarding the markets on Equitymaster's Telegram channel.

Brijesh has been bullish on the market for a long time and he enjoys sharing his knowledge on making fast profits.

You can take advantage of his trading knowledge by joining his Telegram channel - Fast Profits.

Top gainers and losers today

Among the top stocks, Adani group companies were under pressure today falling as much as 5%.

This after the junior finance minister told parliament that some of Adani companies are being probed by the markets regulator over compliance with local securities rules.

Shares of Interglobe Aviation (Indigo) also fell over 4%. Other top stocks including Quess Corp, GIC of India, Piramal Enterprises, Nalco and Bata India fell in the range of 3-4%.

Meanwhile, shares of ACC ignored weak market sentiment and soared over 8% after the company released its second-quarter results with a two-fold jump in consolidated net profit.

Other cement stocks were also on a roll today after ACC and Mangalam Cement reported healthy results.

Shares of UltraTech Cement, ACC, Ambuja Cements, Birla Corporation, JK Lakshmi Cement, Sagar Cements, Shree Digvijay Cement, and The Ramco Cement, hit their 52-week highs and traded higher between 3-9%.

Big companies HUL, Avenue Supermarts, Asian Paints, Info Edge, Pidilite Industries, and Mindtree ended up in the range of 1-2%.

It must be noted that despite the decline seen today and yesterday, the overall damage to the market remains tame.

Benchmarks BSE Sensex and NSE Nifty are still just 2% below their record peaks reached last week.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...