Indian Markets Plunge Amid Virus Fears and Weak Earnings

Economy Politics ANDREW HOLLAND, ASIA, CHINA, HDFC BANK, INDIA, INTEREST RATES, KO, KOSPI, KOTAK MAHINDRA S, MARKET ANALYSIS, MARKET TRENDS, NIKKEI, SHANGHAI, SOUTH KOREA, STOCK MARKET, TAIWAN Nia Simpson January 6, 2025

Indian Markets Plunge Amid Virus Fears and Weak Earnings

Indian markets fell sharply on Monday due to new virus fears and disappointing earnings, losing ₹11 trillion in wealth as the BSE Sensex and NSE Nifty plunged over 1.5%. The rupee hit a new low against the dollar, while the India Vix indicated increasing market uncertainty. Analysts predict ongoing volatility and continued underperformance in comparison to other emerging markets.

On Monday, Indian markets experienced a significant decline as emerging fears surrounding a new virus added to existing economic hurdles, culminating in a loss of ₹11 trillion in investor wealth within a single day. The BSE Sensex and NSE Nifty indices plunged over 1.5%, marking the greatest spike in market anxiety levels as indicated by the India Vix, which rose 15.58% to a value of 15.65. This downturn was compounded by the recent detection of two cases of the human metapneumovirus in India, alongside disappointing corporate earnings and a devalued rupee that closed at a record low of 85.83 against the dollar.

The market’s instability was further exacerbated by lackluster quarterly reports from major banks, such as HDFC Bank, which reported only 3% credit growth year-on-year for the third quarter of FY25. This led to increased selling pressure from foreign investors and a rise in derivative short selling. The Nifty index dropped below the psychologically critical 24,000 mark, closing at 23,616.05, while the Sensex settled at 77,964.99, numbers falling beneath their 200-day exponential moving averages, which typically signals a negative trend.

Unlike India, other major Asian markets experienced less severe impacts; Taiwan’s Taiex and South Korea’s Kospi recorded increases of 2.79% and 1.9%, respectively, while Japan’s Nikkei fell only 1.47%. This disparity in performance highlights India’s vulnerability, given that it faces steep valuations that amplify market risks whenever adverse news arises. Analysts contend that the Indian Nifty, trading at a high price-to-earnings ratio of 22.4, renders it particularly susceptible to market fluctuations.

Broader market sentiments reflected nervousness among retail investors, with the Nifty Midcap 150 and Nifty Smallcap 250 indices declining by 2.5% and 2.88%, respectively. These movements demonstrate a trend toward lower lows, indicating potential for continued weakness in the market. Meanwhile, foreign institutional investors were net sellers of ₹2,575.06 crore, although domestic institutions managed to offset some of this impact with net purchases totaling ₹5,749.65 crore.

As market conditions suggest a prolonged struggle, analysts foresee ongoing volatility, particularly during a crucial earnings season and in light of political shifts in the U.S. administration. Market participants are urged to remain vigilant and prepared for fluctuations ahead.

The Indian stock market has shown signs of vulnerability, particularly in response to external economic pressures and internal financial data. Currently, market pressures stem from recent global events, corporate earnings that have failed to meet expectations, and currency valuation challenges. Analysts and investors are particularly focused on the implications of emerging market risks, such as health-related concerns, which can rapidly shift investor sentiment and market stability. The juxtaposition of India’s high valuations compounding these risks places it in a precarious position among emerging markets, sparking considerable investor anxiety.

In conclusion, India’s financial markets are grappling with a convergence of negative influences, including newly surfaced health risks, disappointing financial performance from key institutions, and a depreciating currency. As sentiment among investors remains fragile, particularly in the wake of significant market declines, vigilance is critical. The outlook remains uncertain, with expectations of continued volatility, underscored by the distinct risks posed to the Indian market’s elevated valuations compared to peers.

Original Source: www.livemint.com