Stocks extend losses for a 2nd session as growth concerns loom

Profit booking in banking and information technology stocks dragged the indices down ahead of the release of inflation numbers in India and the US. The dollar index strengthened, and bond yields rose. Most other sectoral indices ended the day with losses of up to 2.45%.

The Adani Enterprises and Adani Ports, the Nifty stocks, saw corrections of 5.39-7.63%. ACC and Ambuja Cements saw their stock prices fall 3.02-5.25%, while the other six group companies also ended with losses of around 5%.

Nifty was down 0.48%, while Sensex fell 0.41% on Monday

Investor concerns remain around growth and capital expenditures by the Adani group companies amidst the ongoing fiasco and group focus shifting to debt levels, too, analysts said.

“In response to rising bond yields and the dollar index, the domestic market is experiencing a broad-based sell-off, with IT and public sector banks at the forefront,” said Vinod Nair, head of research at Geojit Financial Services.

Meanwhile, domestic retail inflation accelerated from its 12-month low of 5.7% in December to 6.5% in January (ahead of analysts’ expectations of 6.1%), nudged up by higher food inflation. On the other hand, analysts expect the US inflation to fall further from its December low of 6.5%, alleviating concerns about US rate hikes. However, interest rates are expected to stay high in 2023. and elevated yields will be a discomfort for equity, experts said.

The rise in the dollar index and the hardening of bond yields are unfavourable for emerging market equities. Rising yields indicate that rates will remain higher for a long time, analysts said.

The rise in the dollar index meant that the rupee ended the day 22 paisa weaker at ₹82.72. Anindya Banerjee, vice president of currency derivatives and interest rate derivatives at Kotak Securities Ltd, attributed the rupee’s weakness to the strong dollar index and weakness in equities and said that traders are bidding dollars ahead of US CPI tomorrow evening. He expects a range of 82.40 and 83.00.’

Manish Jain, a fund manager with Ambit Asset Management, said stock valuations are now in the comfort zone after the correction.

“They are now below the long-term average with strong earnings growth visibility. We believe IT services, auto, discretionary consumption and banks are the favoured sectors,” Jain said.

S Ranganathan, Head of Research at LKP securities pointed out that Equity ownership of Retail Investors now stands at a record 24.5% at the end of third quarter even as they remind themselves of rising fixed income rates on dull days like today.

Volatility index, India VIX rose by 8% to 13.7 levels.

“We expect the market to remain lacklustre as investors await key economic data on global as well as domestic front to provide some clear direction,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd. The US would release its monthly CPI data on Tuesday along with Europe’s GDP numbers. Auto and Capital goods stocks likely to do well on back of good quarterly results added Khemka.