Markets see worst weekly setback since May, Sensex off 7.8% from peak

FPIs sell Rs 5,931 crore on Friday, most since March

The benchmark indices fell for the sixth session on the trot, amid sustained selling by overseas investors. Weakness in global markets owing to the delay in US stimulus, disappointing Covid-19 trends, and uncertainty around the Union Budget have taken the wind out of domestic equities’ sails after the Sensex topped the historic 50,000-mark in intra-day trade on January 20.

Since then, the index has given up 7.8 per cent, as foreign portfolio investors (FPIs) — a key driver of domestic equities — have headed for the exit door.

On Friday, the Sensex shed another 588 points, or 1.26 per cent —  its fifth straight 1 per cent-plus fall — to finish the week at 46,285.

The Nifty fell 183 points, or 1.3 per cent, to end the session at 13,634. Both indices lost more than 5 per cent during the week — their worst weekly showing since May, when they had dropped more than 6 per cent.

FPIs sold shares worth Rs 5,931 crore on Friday — the most since March 13 (the peak of a Covid-19-triggered sell-off). They have been net-sellers for five straight sessions and yanked out nearly Rs 13,000 crore from domestic equities.

The selling was partly due to a delay in the $1.9-trillion relief package announced by US President Joe Biden to stimulate the economy.

The Indian markets have underperformed their global peers in the latest sell-off amid uncertainty around the Union Budget. Experts say investors have booked profits on fears of hike in taxes in the Budget and increase in fiscal deficit.

At last week’s peak, the Sensex had seen a gain of 26 per cent since November and more than 90 per cent since March lows. The valuation for the index — measured by the price-to-earnings ratio — had climbed nearly 35x on a trailing 12-month basis and 21x on lofty earnings estimate for 2022-23.

“While stock markets value potential future growth, these elevated levels still raise concerns on the disconnect between the financial markets and the real sector,” said the Economic Survey released on Friday.

While the latest correction has helped take some froth off valuations, experts believe the further trajectory for the market will depend on the Budget announcements on February 1.

The government will have to do a fine balancing act of stimulating the economy, whilst also keeping spending under check due to drop in revenue caused by the pandemic.

The Economic Survey said India’s economy could contract 7.7 per cent in 2020-21. However, gross domestic product growth rate could be at 11 per cent in 2021-22.

The economy is expected to grow, helped by vaccine drives to tame the novel coronavirus and low-interest rates.

“The Economic Survey failed to trigger the rebound in markets. All eyes would be on the Budget. We believe the Budget will focus on reviving growth. Any disappointment on that front will lead to further correction in the markets. We reiterate our view to prefer hedged bets before the event unfolds and avoid jumping into a trade until the market stabilises,” said Ajit Mishra, vice-president-research, Religare Broking.

All the Sensex components, barring four (mainly from the banking space), ended the session with losses. Dr Reddy’s Laboratories was the worst-performing stock and ended the session with a loss of 5.7 per cent. Maruti Suzuki fell 5 per cent. Bharti Airtel and Bajaj Auto fell more than 3 per cent.