When trading commenced on 12 April, there was little inkling about the kind of fall that was to follow. By mid-day, the NSE and BSE had cracked by over 3.5% and showed no signs of relenting. The table captures the intensity of the fall. IT and pharma were the only two sectors to show some semblance of a fight but the rate sensitives were hit badly.
|Index||Intraday Fall 12.30 pm||Index||Intraday Fall 12.30 pm|
|BSE Sensex||(-3.35%)||BSE 100 Index||(-3.58%)|
|NSE Nifty||(-3.35%)||NSE Next 50||(-4.39%)|
|NSE Mid-Cap 50||(-6.75%)||NSE Small Cap 100||(-5.66%)|
|Nifty Bank||(-5.19%)||Nifty Auto||(-5.04%)|
|Nifty Media||(-7.94%)||Nifty Metals||(-4.62%)|
|Nifty PSU Banks||(-8.78%)||Nifty Realty||(-6.72%)|
Even FMCG and IT index were in the negative with pharma being the only index in the positive. Clearly, the heightened uncertainty was also visible in the VIX shooting up 14.8% to above the 22.5 levels. But what triggered this crash in the markets.
COVID cases go through the roof
That is the biggest piece of uncertainty now and the worst affected is the commercial capital of Mumbai and the state of Maharashtra. The state has been keen to get into a lockdown and markets dread a repeat of the situation last year. The single day surge in COVID cases was more than 168,000 across India. The real worry for the markets is that if the COVID cases rise and the lockdowns continue then the economic recovery estimated by most of the research and rating agencies may go awfully wrong.
Pace of inoculation remains slow
One factor the markets were betting was on the inoculations to pick up rapidly but that is not the case. A mix of supply constraints and logistic challenges have resulted in a delay in the full roll out of the vaccine. The government has set ambitious targets but the markets are worried that massive gatherings in recent times like the election rallies in West Bengal, Tamil Nadu and Kerala as well as the massive Kumbh gathering could lead to a geometric non-urban spread of COVID cases. That remains a major risk for the economy in general and the markets in particular.
Q4 is expected to be good but, commodity prices are a worry
Indian corporates saw two quarters of smart result announcements in Q2 and Q3. The dividends of cost controls were realized in the form of improved margins and record profit growth. However, analysts are apprehensive that Q4 could be different. That is because commodity prices have gone up sharply on the strength of strong recovery hopes globally. The prices of copper, steel, iron ore, oil have all gone up sharply in the last quarter and there appears to be no respite. A host of companies in sectors like automobiles, capital goods, construction and infrastructure are likely to take deep cuts due to rising input costs. That fear was also instrumental in the sharp cut in the indices.
Fear of inflation rising
Last but not the least, there is a fear in markets globally that inflation could go up. This is not so much due to demand expansion but due to supply side constraints. The inflation fear is evident from the fact that despite the RBI and the Fed assuring markets about dovish stance and low rates, the bond yields continue to remain elevated. The concern is that if the bond yields become too attractive then equity story may look relatively weaker.
Finally, what should investors do? Clearly, the volatility is too high to do some aggressive buying but there is no harm chipping away at your favourite stocks. After all, nothing much has changed fundamentally for the blue chips and yet they are available much cheaper.