China, Fed worries and falling commodity prices weigh on market

Sensex posts biggest drop in two months amid global selloff

The Indian markets began the week on a shaky note amid weakness in the global markets as China’s Evergrande Group’s debt woes, falling commodity prices, and concerns over the US Federal Reserve’s policy meeting worried investors.

The benchmark Sensex ended the session at 58,491, down 525 points, or 0.9 per cent—most since July 19. The Nifty, on the other hand, fell 188 points or 1.07 per cent to end the session at 17,397.

Gains in consumer goods stocks cushioned the market help, helping the Indian markets outperform its global peers.

European markets fell over 2 per cent, while US futures markets signalled a sharply lower opening on Wall Street. Hong Kong’s Hang Seng declined 3.3 per cent amid a selloff in property stocks as investors were worried about the debt crisis of Evergrande

Interest payments on two bonds of the Evergrande group will come on Thursday. It is considered a critical test of whether the company will meet its obligations in the future. Evergrande has fallen behind on payments to banks and suppliers.

Meanwhile, the drop in iron ore prices to below $100, amidst China’s efforts to rein in output, led to a selloff in metal and mining stocks.

Investors are also worried ahead of the US Federal Reserve’s policy statement, where its officials are expected to start laying the groundwork for tapering the stimulus.

“While the markets are keenly awaiting clarity on Fed’s taper plans in terms of timelines and quantum, we believe it may give advance notice on tapering in this week’s meeting, followed by a formal announcement at the following meeting in November. The pace of tapering is expected to be gradual, and the Fed is expected to continue to remain accommodative in its monetary policy stance, which should be supportive of equities. Regarding the Chinese property major, it may be a bit too early to conclude on any possible contagion effects on global markets,’ said Milind Muchhala, Executive Director, Julius Baer.
 

The broader markets saw a sharper cut on Monday with the BSE Mid and Small-cap indices falling close to 2 per cent each. The market breadth was negative, with 2,332 stocks declining against 1,041 advancing stocks.

“The breadth of the market seems to be worsening a bit, which is a sign of caution. A small correction would be welcome at this juncture and help the markets to become healthier, although the bulls are still not willing to give up reins,” Muchhala said.

Barring one, all sectoral indices ended the session with losses. Basic materials and metal stocks fell the most, and their indices fell 4.1 per cent and 6.8 per cent, respectively.

“The worry over slower economic growth and rising Delta variant cases globally continue to keep the market nervous. Even valuations are not comfortable and hence could lead to bouts of profit booking,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

In the past two trading sessions, India’s market cap has seen an erosion of over Rs 5 trillion. On Monday, the combined market cap of all BSE-listed companies was Rs 255.5 trillion ($3.47 trillion).