Recession fears in US spook equity markets

Mumbai: Indian stock indices fell nearly 1 per cent on Monday, logging their biggest one-day decline in over six weeks, as fears of a recession in the US sparked a sell-off across global markets.

The Sensex declined 355.7 points, or 0.9 per cent, to 37808.9 and the Nifty fell 102.6 points, or 0.9 per cent, to close at 11,354.2, ending at their lowest level in a week.

The US markets on Friday suffered their worst day since January when the yield on 3-month treasuries rose above the rate on 10-year treasury yields for the first time since 2007. An inverted yield curve has been historically associated with an upcoming recession. German manufacturing data contracted for the third straight month, adding to fears of a global growth slowdown.


“With recent data coming from Germany and the US, bond markets are suggesting rising fears of a growth slowdown. The Fed has also gone off the tightening cycle. So all these factors are making markets fear a global economic slowdown,” said Neil Kansari, senior portfolio manager at US-based Sands Capital Management.

Flows by foreign portfolio investors moderated sharply in the wake of the global market sell-off. FPIs net bought local stocks worth Rs 150.4 crore on Monday, provisional data showed. FPIs have bought local stocks worth nearly Rs 2,000 crore on an average every day in March till Friday. Their total inflows this month is about Rs 29,500 crore. DIIs net sold local stocks worth Rs 12.5 crore.

All sector indices on the NSE ended in the red, with media, bank, auto and real estate stocks losing the most.

Vedanta, Tata Motors, YES Bank, Mahindra & Mahindra and ICICI Bank were the worst performers in the Sensex with a fall of 2-3 per cent. Coal India, ONGC, and Power Grid Corporation of India gained the most on the Sensex, ending up 2-4 per cent. Mid- and small-cap indices on BSE also shed 1 per cent. Defying the weakness in the broad market. Jet Airways (India) ended up 15.46 per cent at Rs 261 on NSE as the top midcap index performer after principal promoters Naresh Goyal and his wife Anita Goyal stepped down from the company’s board.

The volatility gauge, India VIX, gained for second consecutive session, ending up 2 per cent at 16.6.

Yet, India fared better than other Asian markets on Monday, which fell 0.9-3 per cent. Japan’s Nikkei 225 sank the most. In Europe, markets in France, Germany and the UK were down 0.3-0.6 per cent in mid-session.

“India is one of those isolated countries where global growth matters but on a relative basis it is much more a domestic economy. While India is not immune to global stock market volatility, the ability of the Indian economy to do reasonably well even in a weaker global outlook is better than countries which are export-driven in our view,” said Kansari.

With Monday’s second straight day of declines, India's benchmark have retreated further from record high levels. The Sensex had scaled an all-time high of 38,989.6 on August 29 and the Nifty had touched a record high of 11,760.2 on August 28.

Indian markets had been showing signs of fatigue over the last week after a pre-election rally that saw the Sensex and the Nifty surging about 8 per cent from their February lows on rising bets that the current Bharatiya Janata Party-led coalition will return to power for the second time.

The advance-declines ratio has been in favour of declines for seven out of the last eight trading sessions. About 1,930 stocks fell on the BSE on Monday, while 747 advanced and 190 were unchanged from their previous close.

Market strategists believe Indian equities could lose more of the recently made gains if the recession fears deepen.

“As recession fears rise, markets may rally in the short term on expectation that global central banks will be more dovish. But ultimately if recession happens, there may be a big fall in markets across the globe,” said Piyush Garg, chief investment officer at ICICI Securities.