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The Indian stock market experienced a significant downturn on February 28, with both the Sensex and Nifty indices tumbling over 1% by midday. This decline was attributed to a confluence of factors, primarily centered around escalating fears of a global trade war and mounting concerns regarding a potential slowdown in the U.S. economy. The broad-based selling pressure affected all major sectoral indices, with the BSE Smallcap and BSE Midcap indices bearing the brunt of the impact, each sliding by over 2%. The negative sentiment permeated the market, creating an environment of uncertainty and risk aversion among investors. This market reaction underscores the sensitivity of the Indian stock market to global economic and political developments, particularly those originating in major economies like the United States and China. The announcement of new tariffs by the Trump administration served as a major catalyst for the market decline, highlighting the interconnectedness of global trade and financial markets.
The announcement by then President Trump regarding the imposition of tariffs on Mexican and Canadian goods, in addition to further duties on Chinese imports, exacerbated existing anxieties about a potential global trade war. The proposed 25% tariffs on Mexican and Canadian goods, scheduled to take effect on March 4, coupled with an additional 10% duty on Chinese imports, sent shockwaves through the market. These tariffs were perceived as a significant escalation in trade tensions and raised concerns about the potential for retaliatory measures from other countries. The cumulative effect of these tariffs was expected to disrupt global supply chains, increase costs for businesses, and ultimately dampen economic growth. The market's negative reaction to these announcements reflects the deep-seated concerns about the potential ramifications of a full-blown trade war on the global economy. The article specifically mentions that these tariffs would add to the existing 10% levy imposed earlier in February related to the fentanyl crisis, effectively doubling the duty on Chinese imports to 20%. This compounding effect intensified the market's apprehension.
The breadth of the market decline was evident in the overwhelming number of declining stocks compared to advancing stocks. On the NSE, only 260 stocks advanced, while a staggering 2,291 stocks declined, indicating widespread selling pressure across various sectors and market segments. The Nifty 50 index had already tumbled more than 4% in February and was on track for its fifth consecutive month of losses, marking the longest losing streak in 29 years. This sustained period of negative performance highlights the underlying weakness in the market and the persistent challenges faced by investors. A combination of factors, including concerns about slowing economic growth, fading earnings momentum, Trump’s trade policies, and relentless selling by foreign investors, had collectively dragged the benchmarks down 14% from their record highs in late September. This significant decline underscores the severity of the market correction and the erosion of investor confidence.
According to V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, stock markets inherently dislike uncertainty, and the level of uncertainty had been on the rise since Trump's election. He noted that the series of tariff announcements by Trump had been consistently impacting markets, and the latest announcement of additional tariffs on China confirmed the market's view that Trump would utilize the initial months of his presidency to threaten countries with tariffs and subsequently negotiate for settlements favorable to the United States. This perspective sheds light on the market's interpretation of Trump's trade policies and the perceived strategic intent behind them. The market's response suggests that investors were increasingly wary of the potential for further trade-related disruptions and the resulting impact on global economic stability.
Despite the prevailing pessimism, Vijayakumar expressed a belief that a full-blown U.S.-China trade war was unlikely. He anticipated a recovery in Indian markets in March, driven by improving macroeconomic data and a slowdown in foreign institutional investor (FII) outflows. He reasoned that since large-cap valuations were fair, and in some cases attractive, FIIs were unlikely to continue selling as aggressively as they had in recent months. He advised long-term investors to take advantage of the market weakness by gradually accumulating fairly-valued quality large-cap stocks and selected fairly-valued stocks in the broader market, citing defence stocks as an example. This contrarian view offered a glimmer of hope amidst the market gloom, suggesting that the long-term fundamentals of the Indian economy remained sound and that the market correction presented opportunities for discerning investors.
The data on investment flows revealed that foreign institutional investors (FIIs) had offloaded Indian equities worth Rs 47,349 crore so far in February, while domestic institutional investors (DIIs) had stepped in with net purchases of Rs 52,544 crore. This divergence in investment flows indicates a contrasting sentiment between foreign and domestic investors. The FII selling pressure likely contributed to the market's decline, while the DII buying provided some degree of support. The fact that DIIs were net buyers suggests that domestic investors had a more positive outlook on the Indian market and were willing to absorb some of the selling pressure from FIIs. This dynamic highlights the role of domestic institutions in stabilizing the market during periods of external shocks.
The sectoral carnage was most pronounced in IT stocks, with the index plunging 4% after U.S. jobless claims data fueled fears of an economic slowdown. This sector's underperformance underscores the sensitivity of IT companies to the economic conditions in the United States, which is a major market for their services. The weak U.S. jobless claims data raised concerns about a potential slowdown in the U.S. economy, which could negatively impact the demand for IT services. So far that week, the IT index had shed nearly 8%, significantly exceeding the broader Nifty 50's decline of just over 2%. This disproportionate decline highlights the specific vulnerabilities of the IT sector to global economic headwinds.
Banking stocks also faced headwinds, with the Nifty Bank index slipping more than half a percent as 10 of its 12 constituents traded lower. This weakness in the banking sector reflected broader concerns about the health of the Indian economy and the potential impact of a slowdown on loan growth and asset quality. The underperformance of banking stocks added to the overall negative sentiment in the market.
Among the Nifty 50's biggest losers, Maruti Suzuki, Titan, Wipro, IndusInd Bank, and Tech Mahindra tumbled between 4 and 5%. Meanwhile, Grasim, Shriram Finance, HDFC Bank, Axis Bank, and Coal India emerged as the session's top gainers, climbing between 0.5 and 2.5%. This mixed performance within the Nifty 50 indicates that some stocks were more resilient than others in the face of the market downturn. The presence of both losers and gainers suggests that the market decline was not uniform and that some companies were better positioned to withstand the negative sentiment.
In the broader market, Premier Energies slumped 5% as its six-month shareholding lock-in period expired. Shares of IREDA saw an even steeper decline, dropping more than 7% as the stock debuted in the Futures & Options (F&O) segment at the start of the March series. The sharp drop followed a strong run, with gains in four of the last five trading sessions. These specific stock movements highlight the idiosyncratic factors that can influence individual stock prices, even during periods of broad market decline. The expiration of the lock-in period for Premier Energies and the debut of IREDA in the F&O segment triggered specific selling pressures that contributed to their sharp declines.
Global cues remained weak, with Wall Street closing lower on February 27 after disappointing U.S. economic data and a pullback in tech stocks, while European markets fell on renewed tariff fears. Asian markets mirrored the slump, tracking overnight declines in the U.S., particularly after a sell-off in chipmaker Nvidia. These weak global cues further exacerbated the negative sentiment in the Indian market, as investors reacted to the global headwinds. The interconnectedness of global financial markets means that negative developments in one region can quickly spill over to other regions, impacting investor sentiment and market performance.
Manish Sonthalia, CIO at Emkay Investment Managers, sees strong support for the Nifty around the 22,000 mark. He believes that if the market dips below 22,000, significant buying interest would emerge. He argued that there is value in the market, but it is difficult to pinpoint exactly where it will come from. He acknowledged that FIIs continue to sell relentlessly, but as the market tests deeper lows, deep value opportunities will become increasingly apparent. He concluded that 22,000 would serve as a crucial floor for the Nifty. This technical analysis provides a potential level of support for the Nifty and suggests that the market may find a bottom around this level. However, it is important to note that technical analysis is not always accurate and that market movements can be unpredictable.
Source: Sensex, Nifty tumble over 1% each; all sectoral indices in red; broader markets sink over 2%