Amid global selloff, markets see intraday wild swings, Sensex down1,015 pts

The benchmark Sensex opened gap-down 827 points (down 1.4 per cent), then went on to fall -1,015 points, or 1.7 per cent over its previous day's close

Indian markets continued to witness sharp volatility amid a selloff in global equities due to fresh lockdowns in China and the hawkish stance of central banks. The benchmark Sensex opened on a weak note, losing 827 points or 1.4 per cent, and then went on to fall 1,015 points, or 1.7 per cent, over its previous day’s close. The index saw sharp recoveries and selloffs during the intra-day trade and finally ended the session at 58,766, with a decline of 770 points, or 1.3 per cent. The Nifty50, after dropping to a low of 17,468, ended the session at 17,543, with a decline of 216 points, or 1.2 per cent. Both the benchmark indices have yo-yoed this week, dropping 1.5 per cent on Monday and then rebounding 2.7 per cent on Tuesday.

The source of this volatility has been US Federal Reserve Chairperson Jerome Powell’s speech at Jackson Hole, which has clearly signalled that the US central bank will continue to hike rates and keep them high until inflation is close to the target.

Meanwhile, fresh Covid-19 break in China roiled commodity markets and added another layer of uncertainty to the global economic growth.

China, on Thursday, decided to lock down 21 million residents of Chengdu, the country’s biggest city to be shut down since the two-month lockdown in Shanghai.  It accounts for about 1.7 per cent of China’s gross domestic product.

Analysts said the volatility in equities reflects fears about a global economic downturn, along with a restrictive monetary policy. Investors are expecting the European Central Bank to hike rates by 75 basis points at next week’s meeting.

Geopolitical tensions, on account of Russia’s invasion of Ukraine, and Taiwan’s ongoing tensions with China, are other headwinds the markets are grappling with. News reports on Wednesday said Taiwan shot down a Chinese civilian drone after weeks of complaints about incursions by unmanned aerial vehicles.

The Indian markets, however, haven’t seen a sharp pullback as compared to global peers. Even Thursday’s decline was largely on account of a 3 per cent fall in shares of index heavyweight Reliance Industries. Stocks of the country’s most-valuable firm fell amid a fall in global oil prices and hike in windfall tax on export of fuel. Despite the global turmoil, the overall market breadth was positive with 1,873 stocks gaining and 1,565 declining on the BSE.

Overseas investors sold shares worth Rs 2,290 crore on Thursday, after pumping in over Rs 4,000 crore in the previous trading session.

Since the beginning of the year, financial markets have suffered from a combination of geopolitical shocks, an economic slowdown, soaring inflation and tightening monetary policy.  An equities rally in July, spurred on by hopes that central banks could slow down and eventually even reverse their rate hikes once inflation rates hit a peak, was short-lived.

Analysts said that the change in tone of central bankers at Jackson Hole further spooked markets and highlighted the fragility of equity markets in the current environment.

Experts said risky assets could see more drawdowns as markets adjust to the new monetary regime adjustments in the months ahead.

"Markets had factored in too much hope and not enough economic realities. Thus, the next few months are likely to become difficult for investors, and I think it is time to be prudent and reduce the risk. We decided to further reduce our equity allocation to underweight. We believe the absolute return outlook for equities is outright unattractive in the coming months," Michael Strobaek, global chief investment officer, said in a note to investors.

However, some market participants expressed hope that India's status as a growing economy and foreign portfolio investor flows will make Indian equities immune to global headwinds.

"Markets are showing tremendous resilience amid weak global cues and the recent consolidation should be seen as a breather, to digest the gains. We thus recommend continuing with the buy-on-dips approach," said Ajit Mishra, vice-president, research, Religare Broking.

Among sectoral indices, BSE Oil & Gas and BSE IT fell the most at 1.8 per cent and 1.7 per cent, respectively.