Indices tumble over fears of a second wave of infections

Fed’s assessment of a long-lasting damage to US economy dented risk appetite

The benchmark indices fell, along with other global markets on Thursday, as worries over a second wave of infections clouded investor sentiment. The US Fed’s assessment of a long-lasting damage to the US economy also dented risk appetite.

The Nifty ended at 9,902, a fall of 2.1 per cent or 214 points. The Sensex, on the other hand, tumbled 709 points or 2.07 per cent to end the session at 33,538. It was the biggest single-day loss for both indices since May 18.

Most global equities tumbled nearly 2 per cent, with the US futures indicating another day of losses on Wall Street.

US Fed Chair Jerome Powell suggested the pandemic could inflict a long-lasting damage on the US economy. Powell added that he was “not even thinking of raising rates”, and said he was concerned that the job market might struggle to recover.

“The Fed statement implied that economic recovery would be slower than what people were thinking. The markets were taken aback to know that a ‘V-shaped’ recovery may not be there. So, there was a sell-off globally. If the global economy takes long to recover, then no one is going to benefit,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.

“The awaited Federal Open Market Committee announcement drove negativity in global markets, with the Fed diminishing hopes of quick recovery in the US economy,” said Vinod Nair, head (research), Geojit Financial Services.

Investors are concerned that countries including the US will have to brace for a second wave of infections. There has been a spurt in cases in the west and south of the US, which loosened their lockdown weeks ago. India has also eased restrictions, even though the spread of Covid-19 continues unabated.

“With infections continuing to remain high, the markets are also worried about any additional lockdown measures that might be imposed. This could mean offsetting the optimism of the past two weeks, where investors were banking on the economy restarting fully,” said Nair.

The latest fall in the market comes after sharp gains in recent weeks. Before the latest fall, the benchmark indices had logged a 15 per cent gain in just three weeks, stoking valuation concerns. “The correction is healthy, considering the high valuations. The situation is tough, and we don't have the requisite amount of leeway from the government. Until you see the biggest cities such as Mumbai flatten the curve, the supply-chain issues will continue to persist,” said Abhimanyu Sofat, V-P (research), IIFL.

Analysts say the positioning of global indices will continue to dictate the market trend in the future. They advised clients to limit leveraged trades and keep existing positions hedged.

Broader markets continued to outperform, with the Nifty Smallcap and Midcap indices declining just 0.9 per cent and 1.3 per cent, respectively.

Market breadth was negative, with 1,018 stocks advancing and 1,533 stocks declining on the BSE. All Sensex components, barring five, ended the session with losses. State Bank of India fell 5.6 per cent, the most among the Sensex components. Sun Pharma fell 5.1 per cent, and Maruti Suzuki and Bajaj Finance fell 4.2 per cent and 4.1 per cent, respectively. All the 19 sectoral indices of the BSE ended the session with losses.telecom and metal stocks fell the most, and their sectoral indices fell 4 per cent and 2.9 per cent, respectively.

Vodafone Idea fell 13 per cent. The company has told the Supreme Court that it does not have enough money to pay salaries, and is unable to give bank guarantee in the AGR case.