Terrible Thursday: Stocks crash, rupee weakens, bonds steady

Indian equities fell for the sixth straight session on Thursday, as weak economic forecasts and rising Covid-19 cases dampened investor sentiment, causing investors to lose nearly Rs 4 lakh crore in market capitalisation. The rupee lost value in sync with other peer currencies in Asia as the dollar put on gains, ending the day at 73.9037 against the greenback. Bonds ended the day on a steady note with yields coming off towards the close to 5.99%; earlier they had sold off after Reserve Bank of India (RBI) declined all offers for a Rs 10,000 crore at an open market operation (OMO) with yields rising to 6.03%. Gold prices witnessed a sharp correction.

The Sensex crashed 1114.82 points (2.96%) to close at 36,553.6 while the Nifty50 gave up the 11,000 mark after falling 326.3 points (2.93%) to close at 10,805.55. Foreign portfolio investors (FPIs), have pulled out $807.39 million in the last three sessions bringing down September inflows to just $245.95 million.

Gold was trading at $1861.5 per ounce, down by 0.36% on Thursday. Prices of gold have come down by nearly 5.1% since September 21, after Wall Street and other equity markets globally started correcting.

The dollar continued to gain as other currencies globally continued to weaken, after the “risk on” sentiment took a hit amidst dwindling hopes of a quick economic recovery.

UR Bhat, director, Dalton Capital Advisors (India), said, “The recent dollar appreciation is the proximate reason for gold price correction because an appreciating dollar is seen as a safe haven to rush to. Equities, however, have a life of their own and with the fundamentals not supporting current valuations and foreign portfolio investor flows turning negative of late, markets are correcting.” According to him, the earlier view of novel coronavirus cases tapering off and the economic recovery being round the corner does not hold.

The benchmarks have fallen by 6.07% since September 17. The strong sell-off was witnessed across the market and the Nifty had only three gainers for the day. Deepak Jasani, head – retail research of HDFC Securities, said investors have been bombarded with a perfect storm. “European stocks and Asian stocks dropped following a rout in tech shares in the US on Wednesday and as investors have largely given up on the idea that the US Congress will provide a new stimulus, while worrying about a recent rise in COVID-19 cases. Investors are bombarded by a perfect storm of problems including rising virus infections, new lockdowns, a slowing economic recovery, stalled US stimulus talks and election uncertainty,” he said. To make matters worse, economists at Goldman Sachs too have cut their forecast for US growth for the fourth quarter to 3% from the earlier 6%.

Markets had risen by 51% since their March 23 lows owing to the rush of liquidity in the markets after stimulus given by the central banks globally. This led to markets running ahead of the economic fundamentals. With the correction taking place in the markets, the gap between the fundamentals and the markets is narrowing. Experts believe that this correction could last 4-6 weeks as the fundamentals of the economy have not been improving sharply and yet markets have run up much ahead based on expectations of 6-12 months hence. According to Jinesh Gopani, head – equity, Axis AMC, the ongoing market correction is a liquidity based sell-off. He said, “‘The rally that we were witnessing so far is a global liquidity driven rally and we are correcting in sync with the EMs. No one can say whether the correction will continue or stop. Given that the global liquidity is reversing and the dollar is trading upwards, it is more of a liquidity based sell-off.”