Domestic shares plunged on May 19, in line with global peers as concerns over inflation shattered the risk appetite of investors after the UK inflation surged to its highest annual rate in 40 years in April.
Sensex cracked as many as 1,539 points in intraday trade before settling with a strong loss of 1,416 points, or 2.61 percent, at 52,792.23. Nifty settled with a loss of 431 points, or 2.65 percent, at 15,809.40.
Disappointing numbers from some of the world's largest retailers such as Walmart have shown how bad the inflation situation has become. The worst part is that it may deteriorate even further.
Rating agencies have been downgrading the global growth outlook due to higher commodity prices, the Ukraine war, lockdown in China and rate hikes by central banks. So the road ahead, even after inflation eases and the Ukraine war ends, will remain hazy.
"The recent earnings reported by the US retailers reflected the heat of high retail inflation, resulting in the rout in Wall Street. Persistent offloading by foreign investors along with mounting fears of an economic slowdown wreaked havoc in the domestic market," said Vinod Nair, Head of Research at Geojit Financial Services.
"The rout in other Asian indices and European gauges triggered a massive sell-off in local equities as both Sensex and Nifty ended below their crucial psychological levels of 53,000 and 16,000, respectively. Investors fretted over stagflation risks and Federal Reserve's more hawkish stance to rein in inflation by opting for more rate hikes, which would have a bigger impact on the economy going ahead. Till the time FIIs remain net sellers, the south-bound journey will be difficult to reverse," Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, pointed out.
BSE Midcap index fell 2.66 percent while the smallcap index suffered a loss of 2.29 percent. Among the sectoral indices, BSE IT and Teck indices fell more than 5 percent each. All sectoral indices ended in the red with majority of them falling more than 2 percent.
The overall market capitalisation of BSE-listed firms dropped to ₹249.1 lakh crore from ₹255.8 lakh crore on May 18, making investors poorer by ₹6.7 lakh crore in a day.
Analysts are advising picking only quality stocks at this juncture from select sectors for the long term.
"In this highly volatile market, investors can focus on sectors like FMCG, pharma, capital goods and manufacturing whose valuations are moderate and reasonable on a long term basis," said Nair.
Ajit Mishra, VP - Research, Religare Broking underscored this fall indicates that bears are in control as the Nifty has completely reversed the recent gains and again reached closer to the March low. "
"Indications from the global indices, especially US markets are pointing toward a further decline. Traders should align their positions accordingly," said Mishra.
Disclaimer: The views and recommendations made above are those of individual analysts and not of MintGenie.