WHY IS THE MARKET FALLING?

about 7 months ago
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On one hand, we see a stellar listing of MTAR Technologies, at a 85% premium to the IPO price and on the other, we see the broader market tank almost 800 points in the mid-session. The point is – if it were sentiments alone, a new listing does get impacted despite the fantastic response to the IPO and grey market premiums. Thus our inference – its opportunists going for profit taking.  

So, what are the reasons making the rounds today?

1: Resurgence of Covid, the second wave – there is fear that things in Maharashtra are once again going out-of-control and we could see various forms of lockdowns imposed across the state, impacting the fragile economic recovery.

2: Doubts over vaccine – with many reports coming from across the world about the efficacy and growing fear of clotting, countries in Europe, Denmark, Norway, Ireland, Thailand also suspending the usage of this vaccine, administered as ‘Covishield’ in India currently has raised concerns. Though the WHO and the Indian Govt have stated that it has no plans to suspend, there is some sense of discomfort growing. Those following the news are now preferring to delay the jab till more clarity comes in. This, along with the rising cases could become a fatal combination. But if company, Astra Zeneca and the Indian Govt go on to reassure people, we could win this war with the pandemic.

3: FIIs still love India – unlike various reports suggesting that FIIs are selling lock, stock and barrel, that’s not true. Data for the month of March indicates that till 12th of March, FIIs have been net buyers to the tune of Rs.3328 crore while Domestic Institutional Investors (DIIs) have been sellers to the tune of Rs.1396 crore. And they were massive net buyers in Feb – Rs.42,000 crore and in Jan too at Rs.9000 crore. DIIs, remained sellers in both Jan and Feb at Rs.12,000 crore and Rs.16,400 crore respectively.

4: The Bond yield overhang – the yields on the US 10-year notes are currently steady but at a 13-month high; they are steady because all eyes are on the Fed’s decision and cues it gives on Wednesday night. The $1.9 trillion recovery package signed last week is also keeping these yields high at the moment.

5: China down – despite encouraging industrial output data and rise in retail sales, the markets closed in the red today as the Govt is taking all measures to prevent a contagion impact on account of assets bursting in the overseas markets. The Govt has given guidance to prevent loans flowing into the frothy stock and property markets. Apart from setting a more conservative growth target for the year, the Beijing Govt has also warned banks, asking them to trim their loan books and not get caught in bubbles in the domestic financial markets.

6: IIP and CPI – both the data were not good with IIP for Jan contracting and CPI for Feb rising. Today’s data showed that WPI for Feb rose to 4.17%, a 27-month high. The rising commodity prices and especially fuel, remains a big concern in the coming months. This is leading many to bet on RBI getting into the “tightening” mode, which in layman’s language means hiking interest rates. And this is a wrong expectation that RBI, in its April meet will swiftly hike rates. On 8th March, the 5-year interest swaps rose to 5.42%, which as per some foreign funds indicates that India will see the most rapid tightening than any nation in Asia.  The truth – interest rates will remain low till such time that the economy does not see sustainable growth despite perking inflation.

Yes, we are in a kind of volatile situation right now – the rising covid cases and the rising inflation rates. Well, another way of looking at this situation is that last year, we went through the worst; if we could survive that, we can survive the second wave too.

At the end of the day, it’s a market after all and it will correct as when valuations seem too high; its only us who look for reasons.

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