“The decline in crude prices is positive for the Indian economy as we import bulk of the commodity. However, the fall is not a standalone event. It is a manifestation of multiple factors, which include global demand and structural geopolitical challenges. So, while the benefits of lower crude prices are clear, there will be an impact of global demand challenges, which could outweigh the benefits of lower crude prices,” said Naveen Kulkarni, chief investment officer, Axis Securities.
On Tuesday, foreign portfolio investors (FPIs) sold shares worth nearly Rs 2,100 crore, with little support coming from domestic institutional investors, who, too, were net-sellers although marginally. Last month, FPIs had pulled out a record Rs 62,000 crore from domestic equities. In comparison, FPIs had been net-buyers on most occasions in April, thanks to the improvement in risk appetite underpinned by aggressive stimulus packages unveiled by policymakers globally and also a slow increase in the number of Covid-19 new cases in key geographies.
Thanks to abatement of FPI selling, the Indian markets
had managed to rebound more than 20 per cent from their coronavirus
lows on March 23.
However, the fall in oil prices raised doubts over FPI action going ahead. Some believe the plunge in oil prices could trigger a fresh round of selling by overseas investors. Many foreign funds investing in India are directly or indirectly backed by oil-rich countries.
In the past two months, the markets
and the economy had charted a divergent path. Most stocks had managed to climb despite a virtual halt in the economic activities due to lockdowns announced to contain the pandemic. Market players said stocks are susceptible to correct due to earnings uncertainty.
“Corporate earnings have been impacted by the pandemic-related shutdowns. Post earnings management guidance has also not given a clear indication about the recovery path. Earnings results will be in focus for the future course of the company business,” said Vinod Nair, head of research, Geojit Financial Services.
The market breadth, which has been resilient so far this month, showed signs of cracking. On Tuesday, the declining stocks were twice that of advancing on the BSE.
Barring three, all the Sensex components ended with losses, with banking and financial stocks witnessing deep cuts. IndusInd Bank, Bajaj Finance, ICICI Bank, and Axis Bank dropped between 8 per cent and 12 per cent. The Bank Nifty
index fell 5.4 per cent. The India VIX rose 4 per cent.
From a technical point of view, the Nifty
could drop to 8,800 if it fails to sustain above 8,900, said analysts.