Here’s what wiped out over ₹3 lakh crore investor wealth this week

• Indian benchmark index Sensex slipped around 3% in the last five trading days because of concerns related to inflation and economic growth.
• Continued selling of stocks by foreign investors also weighed on the market.
• At the same time, concerns around the Russia-Ukraine war and rising Covid-19 cases in China also added to the dip.

The Indian stock market has been in deep red in the last few days worrying about a myriad of concerns around inflation, poor quarter of top IT firms, selling of stocks by foreign investors, Russia Ukraine war among several other factors.

The market capitalisation of BSE listed companies came down by over ₹3 lakh crore to ₹268 lakh crore today.

The latest concern shaking investor sentiment is the International Monetary Fund (IMF) slashing growth forecast for India for FY23 by 80 basis points to 8.2%, warning that Russia's invasion of Ukraine would hurt consumption and hence, growth, by way of higher prices.

100 basis points make up 1%.

In the meantime, wholesale inflation is now near the same level as it was during the 1991 Indian economic crisis. India’s central bank, the RBI, has revised the GDP growth forecast downward to 7.2% from 7.8%.

On the other hand, US Fed raising interest rates has led to a sharp selloff by foreign institutional investors (FIIs), contributing to a huge fall in the market.

FIIs sold over ₹1 lakh crore in Indian equity in just about four months of 2022 so far, as compared to the exact amount sold in the twelve months of 2021-22.
The Indian market reflected poor trade in global markets that remained concerned from rising treasury yields in the US and on the expectation of faster policy tightening by the US Federal Reserve.

Policy tightening refers to reducing the supply of money in the system. Here it means the US central bank will decrease the asset purchase (buying bonds) every month that it did to boost economic growth, also known as quantitative easing.

10-year US Treasury yields also rose substantially on the back of concerns around rising inflation and its effect on economic growth. This has spooked investors, leading to a selloff in US bonds over the past couple of months, pushing up yields, which now stand at around 3%, highest in three years.

Domestic concerns also contribute to investor pessimism

Apart from global concerns, domestic concerns also added to weak investor sentiment. Wholesale inflation was reported nearly at the same level as it was during the 1991 economic crisis that changed India forever.

Wholesale inflation rose to 12.96% for FY22 owing to factors like the second wave of Covid-19, the Russia-Ukraine war and other supply chain bottlenecks that have resulted in an increase in inflation, making essentials like food items and commodities more expensive.

Adding to the woes, the corporate earnings of some of the top companies turned out to be disappointing, which led to more sell-off. Both Infosys and TCS reported high attrition rates with weak margins because of high employee costs and travel costs.

Another top firm and heavyweight on the indices, HDFC Bank’s modest earnings in the March quarter contributed to the sell-off.
However, today on April 20, markets took a breather from some volatile trading sessions. Analysts believe markets will take some more time to recover completely.

“As a result of geopolitical and economic factors, inflation is on the rise. On the other hand, all central banks began to make decisions to control inflation. As a result, we anticipate that the market will recover in 1 to 2 months,” said Ravi Singhal, vice chairman at GCL securities.

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