Markets extend selloff as Covid-19 surges; investors flee risky assets

Over Rs 10 trillion of investor wealth has been wiped out in March, as rising US bond yields and Covid-19 infections triggered a flight to safety.

The benchmark indices fell sharply for a second session as the alarming rise in Covid cases hit investor sentiment and raised doubts over the pace of economic recovery.

The Sensex ended at 48,440, with a decline of 740 points or 1.5 per cent, while the Nifty closed at 14,325, a fall of 224 points or 1.5 per cent. Both indices are now back at levels last seen before the Union Budget. The blue chip company-focused indices have declined around 7 per cent from their peak on February 15.

Over Rs 10 trillion in investor wealth has been wiped out this month as investors flee to safety with the rise in US bond yields and the resurgence in infections.

India was the worst-performing major market globally on Thursday. Most others were up or down marginally, following an upbeat assessment for the US economy given by Treasury Secretary Janet Yellen and US Fed Chair Jerome Powell.

Market players attributed the fall to technical factors such as expiry of the March series derivatives contracts. Also, local factors, mainly the prospects of fresh curbs to contain the spread of the virus, hurt domestic stocks.  

India had reported over 50,000 cases for the first time in five months on Wednesday, and more than two-third of the cases came from Maharashtra. 

A new “double mutant” variant has been detected in India. Analysts said the second wave could impact the nascent economic recovery. Many states have declared localised lockdowns to contain the spread. 

Further, the government has opened vaccination to all those aged 45 and above from next month. 

“The correction is largely on account of the increase in infections. The numbers are galloping almost uncontrollably, at least in two or three states. The one positive is that we now have effective vaccines, and if quickly administered with wide coverage, we can avoid the pitfalls of the first wave last year. With the experience of the last year, medical professionals are more proficient in dealing with this situation, and fatalities have come down after the vaccination programme,” said U R Bhat, director, Dalton Capital India.

“The market may remain under pressure in the near term amid weak global cues and fast-spreading second wave of Covid, which could impact the pace of economic recovery. High commodity prices, too, are a concern, and till it cools off substantially, the fear of inflation would loom. Given the likelihood of high volatility in the market for some time, investors would do well by staying calm and gradually accumulating good quality companies on declines,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

Analysts said a fall in infection rate through imposition of more onerous restrictions and by picking up the pace of vaccination might quickly stabilise the markets. Here on, the economic impact of a potential lockdown and its effect on the apparent V-shaped recovery are the questions markets are trying to grapple with, analysts said.

“And if there is a continued outflow from FPIs, the rupee will come under pressure. Interest rates and the Covid situation are the two important factors that will decide the trajectory of the markets,” said Bhat.

Market breadth was strongly in favour of declines for a second day. A total of 2,189 stocks fell on the BSE, while only 760 advanced. 

Except four, all Sensex constituents declined. 

Telecom and power stocks fell the most, and their gauges fell 3 per cent and 2.8 per cent, respectively. On Thursday, foreign investors pulled out Rs 3,384 crore from domestic stocks. A day earlier, they had sold shares worth close to Rs 2,000 crore.