Stocks slump nearly 3.5% on lockdown fear

Mumbai: The stock market slumped to its biggest one-day drop in two months with the Sensex falling below 48,000 as India’s deepening coronavirus crisis sent investors scampering for safety. The rupee slid past 75 against the dollar on worries that growing infections may prompt the government to resort to further restrictions or even a lockdown.

The Sensex plunged 1,708 points or 3.4% to close at 47,883.38 while the Nifty ended 524 points or 3.53% down to close at 14,310.80. The local fear index India VIX spiked 16% to 23, suggesting traders see more risks to the market in the near term. The Sensex is down 7.2% and the Nifty has fallen 8.8% from record highs in mid-February. Foreign portfolio investors sold shares worth ₹1,746 crore on Monday. Their domestic peers were buyers to the tune of ₹233 crore.

With the second wave of the pandemic turning out to be worse than expected, there is concern among investors that the nascent economic recovery could get derailed further. Reports of vaccine shortages over the past few days and hospitals running short of beds have added to market concerns.

Cyclicals to Take a Backseat: Experts
The daily addition of coronavirus cases topped 100,000 recently and has consistently been above that, setting new peaks.

“The Street is concerned about lockdowns due to rising cases,” said Nilesh Shah, managing director of Kotak Mahindra Asset Management Co., who went neutral-weight on equity three months ago. “We are pricing in higher probability of lockdowns, which may become inevitable in some parts of the country. Those regional lockdowns will impact June quarterly results and also create problems from a supply chain point of view.”

Financial capital Mumbai has been under restrictions for over a week and reports of a complete lockdown starting later this week are doing the rounds. The market is rife with speculation that other states may follow suit with restrictions of some kind or the other to curb the spread of the virus.

Shah said the downturn in markets will be a short one as lockdowns will be more regional and vaccinations will eventually help tide over pandemic concerns.

The drop in Indian stocks was steeper than the rest of Asia, which is also seeing a surge in infections. Japan's Nikkei, South Korea's Kospi, and Hong Kong's Hang Seng index lost 0.8-1%.

With India’s key indices erasing almost all gains made since the February 1 budget day, analysts see them sinking deeper toward January lows.

“It would take a break below 14,261-14,521 (on the Nifty) to set a more cautious tone as such a move would imply a deeper setback towards the January lows at 13,666-13,700,” said CLSA's Laurence Balanco and Jonathan Estrada in a note on Sunday.

Market experts said cyclicals will take a backseat as investors park funds in the safety of defensives amid the surge in cases. Brokerages have also started raising the weightage on defensives such as technology and pharmaceuticals.

“Given the potential near-term risks to growth due to the rising number of Covid-19 cases, inflationary pressures and upward pressure on yields, we raise our weights on defensive sectors – primarily IT services and healthcare,” said Nomura. CLSA and Citi have also cited a defensive turn in recent notes.

Cyclicals such as banks, cement, real estate and infrastructure among others had led the rally since early November as news of vaccines against the virus boosted the risk appetite of investors.