Volatility drags Sensex and Nifty down for third month in 2022

The benchmark Sensex and Nifty fell 2.6 per cent and 2.1 per cent, respectively, in April, marking the third month of decline so far this calendar year. The broader markets performed relatively better with the Nifty Midcap 100 eking out a 0.6 per cent gain and the Nifty Smallcap 100 index declining 1.7 per cent.

April was marred by intense volatility. Rising bond yields, the Russian invasion of Ukraine, hawkish commentary by the US Federal Reserve, and sustained capital outflows were some of the factors that weighed on investor sentiment during the month.

The Sensex fell 460 points, or 0.8 per cent, to end Friday’s session at 57,061, the Nifty finished the month at 17,103, after declining 143 points, or 0.83 per cent, on Friday.

During the month, statements by the US Fed’s officials hinted at an aggressive reduction of its $9 trillion balance sheet and a 50-basis points (bps) hike. Earlier in the month, US Fed Governor Lael Brainard said the central bank would start reducing its balance sheet rapidly in May.

Later, US Fed Chairman Jerome Powell hinted at the prospect of a 50 bps hike in May. And said that “one or more” 50 bps hikes could be appropriate to tame the hottest inflation in four decades.

Anxieties over the hike led to a spike in US Treasury yields. In April, the yield on the 10-year US bond jumped 30 bps to 2.93 per cent before cooling off a bit.

Rising inflation has forced central banks, including the US Fed, to hike rates to tame inflation. The consumer price index-based inflation rose 8.5 per cent in March in the US, the highest since 1981.

Back home, India’s wholesale price index-based inflation surged to a four-month high of 14.55 per cent in March, remaining in double digits for the twelfth consecutive month. Retail inflation numbers showed that it hit a 17-month high of 6.95 per cent in March. As a result, the Reserve Bank of India (RBI) has prepared the market for a possible rate increase in the near future.

The raging war in Ukraine continued to weigh on sentiment. Investors are worried that efforts to isolate Russia from international trade would further disrupt commodity flows.

Meanwhile, the rise in Covid-19 infections and lockdowns in China disrupted global supply chains. The supply-side disruptions and commodity price increases have left investors worried about whether the global economy is headed for a recession. Supply-side disruptions and inflation have made international agencies revise global and local economic growth forecasts. The World Bank had cut India’s growth estimates for FY23 to 8 per cent from 8.7 per cent. The agency lowered global growth in 2022 to 3.2 per cent from January’s prediction of 4.1 per cent.

 

Analysts said volatility is likely to continue as geopolitical tensions show no signs of easing, and the impact of US Fed rate hikes haven’t been fully priced in.

 

“Going ahead, volatility is likely to continue as the focus will shift to central bank policy meetings at both the US Federal Reserve and the Bank of England. Apart from this slew of economic data releases, monthly auto sales data and the ongoing earnings season will keep investors busy. LIC will also hit Dalal Street on May 4, which could pull out liquidity from the market and exert some selling pressure,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

Among sectoral indices, the Nifty IT index plunged 13 per cent during the month amid earnings disappointment by Infosys. Meanwhile, the Nifty Energy index jumped 10.7 per cent led by a sharp up move in Reliance Industries and NTPC.