Stocks slip on earnings setback, inflation data; Sensex falls 1,172 points

Earnings disappointment by index heavyweights Infosys and HDFC Bank dragged the markets lower on Monday, with a spike in inflation and rising bond yields further weighing on sentiment.

The Sensex declined 1,172 points, or 2.01 per cent, to end at 57,166 in its biggest single-day fall since March 7, while the Nifty50 index plunged 302 points, or 1.73 per cent, to close at 17,173. This was the fourth straight day of losses for the benchmark indices.

Shares of Infosys dropped 7.3 per cent and HDFC Bank fell 4.7 per cent, accounting for nearly 60 per cent of the Sensex losses. The March-quarter numbers posted by both the firms failed to meet expectations and triggered a sell-off in other IT and financial stocks as investors feared earnings downgrades.

“Investors are now speculating that if two of the best companies have problems, the results of other companies will be worse,” said U R Bhat, co-founder of Alphaniti Fintech.

Foreign portfolio investors (FPIs) continued to take money off the table as bond yields both in India and the US hit fresh multi-year highs amid the US Federal Reserve’s plan to fast-track monetary tightening. FPIs sold shares worth Rs 6,387 crore on Monday, while domestic investors provided buying support to the tune of Rs 3,342 crore.

Besides weak earnings, investors had to digest negative macroeconomic data on the inflation and GDP outlook front.

Last week, the World Bank had cut India's growth estimates for FY23 to 8 per cent from 8.7 per cent, citing supply-side bottlenecks and rising inflation due to the Ukraine crisis. India’s wholesale price-based inflation surged to a four-month high of 14.55 per cent in March, remaining in double digits for the 12th consecutive month beginning April 2021. The retail inflation numbers released last week showed that it had hit a 17-month high of 6.95 per cent in March.

"The wholesale inflation number was worse than expected, and the markets started correcting sharply after the data came,” said Bhat.

Global growth concerns and the war in Ukraine have also provided little respite. China's GDP growth for the March quarter, however, beat analysts' estimates, rising 4.8 per cent against expectations of a 4.4 per cent year-on-year increase. However, retail sales in March fell by more than 3.5 per cent, which was worse than expected. Experts attributed this to the curbs to contain the pandemic. The Covid situation in China, especially in its economic hub Shanghai, has led to worries about supply-side disruptions.

The 10-year US bond yield traded above 2.8 per cent, the highest since December 2018. Investors were eyeing the comments by Fed officials to gauge whether interest rates have to be raised by half a percentage point next month to contain inflation. Analysts said investors were trying to assess whether inflation has peaked and were worried that central bank actions to contain inflation would lead to an economic downturn. The Brent crude was trading at over $110 per barrel after falling below $99 per barrel at the beginning of last week.

“We expect FY23 to witness continued volatility in equity markets, especially in the first half of the year with rising interest rates globally and high inflation, which is expected to persist,” said Naveen Kulkarni, chief investment officer, Axis Securities.

The market breadth was weak, with 2,133 stocks declining and 1,393 advancing. Two-thirds of Sensex components fell, while 10 advanced led by NTPC, which rose 6 per cent.