Sensex, Nifty end flat; log biggest quarterly loss since March 2020

Benchmark indices on Thursday finished lower, capping their worst quarterly performance since March 2020. The Sensex last closed at 53,019 and the Nifty50 finished at 15,780 — both dropping nearly 10 per cent during the quarter. Meanwhile, the Nifty Smallcap 100 and the Nifty Midcap 100 fell 11 per cent and 19 per cent, respectively. This was the worst performance for the equities market in nine quarters. During the March 2020 quarter when the pandemic first reared its head, the Nifty had declined 29 per cent, while the Nifty Midcap 100 and the Nifty Smallcap 100 had dropped 32 per cent and 38 per cent, respectively.

The rise in crude oil prices, interest-rate hikes by central banks, disruptions in global supply chains, and fears of recession have led to a market decline over the past three months. Brent crude was last trading at $117 per barrel, against $77 per barrel during the beginning of the year. Crude oil prices fuel inflation, widen current account deficit, and impact macroeconomic stability. India’s growth projections in the Economic Survey 2021-22 were made assuming crude oil prices are at $70-75 per barrel.

Sustained selling by foreign portfolio investors (FPIs) has also contributed to volatility in Indian markets. FPIs have sold equities worth Rs 1.07 trillion in the past three months. China’s zero Covid policy and the resultant curbs kept investors worried in the past few months. Although Covid restrictions have been eased, experts feel the lockdowns will be back if there is a resurgence in cases.

The US Federal Reserve’s (Fed’s) commitment to tame inflation led to rate hikes by major central banks across the globe. The Fed raised its interest rates 75 basis points (bps) in June — its biggest increase since 1994. The Reserve Bank of India also announced a surprise rate hike early May of 40 bps and another 50-bp hike in June.

Analysts said a gloomy economic outlook and scepticism about whether policymakers will be able to rein in inflation without triggering recession is keeping investors on tenterhooks. They say these concerns will continue to weigh on markets even during the September quarter.

“Investors worry that the latest show of central bank determination to reel in inflation will slow economies rapidly,” said Deepak Jasani, head of retail research, HDFC Securities.

Monsoons and corporate earnings for the September quarter could also have a bearing on market trajectory.

"Farmers and the Indian government are banking on the monsoon rains to keep rice production, inventories and food inflation manageable. Interest growing concerns about corporate profits and economic growth continue to impact the sentiments," said Mitul Shah, head of research, Reliance Securities.