The Nifty50 experienced a continued downward trend, closing in the red for the eighth consecutive day on Tuesday and finishing February with a fall of 2.03%, adding to the losses of 2.45% in January and 3.48% in December.
The markets have been highly volatile on concerns over further rate hikes by major central banks, ongoing geopolitical tensions, sustained foreign selling, expensive valuations, weak performance by India Inc. in Q3FY23, a strong US dollar, and a significant sell-off in Adani Group stocks.
Last week, domestic benchmark indices the Nifty and Sensex experienced their worst week in 2023, with a decline of 2.67% and 2.52%, respectively. This was due to fears that the US Federal Reserve would continue to raise interest rates in order to tame inflation.
As Indian markets are moving on a downward trajectory, the UK overtakes India as the world’s sixth-largest stock market for the first time in nine months.
Meanwhile, foreign investors have turned cautious and pulled out ₹2,313 crore from Indian equities during February 1–24. However, the pace of selling has come down compared to January, when Foreign Portfolio Investors (FPIs) took out Rs. 28,852 crore.
Analysts are citing multiple reasons for the pullback, such as the expensive valuations of Indian shares over their global peers, the reallocation of funds to China and Taiwan for their relatively cheaper valuations, and Beijing's reopening on easing COVID-19 controls.
In CY22, FPIs sold Indian equities worth Rs. 1.21 lakh crore, the highest yearly outflow since the 2008 global financial crisis.
The Indian Rupee, on the other hand, is hovering near its all-time low of ₹83 against the US dollar that it reached in October of last year. The currency has experienced a 1.10% decline to 82.64 in February, which has wiped out all the gains it made in the previous month.
The rupee has remained under pressure on account of the plateauing of exports and the subsequent widening of the current account deficit.
The Dollar Index, which measures the value of the US dollar against a basket of major currencies, saw a gain of 2.72% in February. This was a significant change after a continuous decline that lasted for four months until January. Despite the recent surge, the index remains down by 8.63% from its all-time high of 114.7.
Adding to the challenges, the banking sector, which stood as a driving force behind the index's growth in previous years, was now facing headwinds, causing the Nifty50 to underperform. The Nifty bank index slumped by 0.94% in February, while the Nifty PSU bank index corrected by 8.68% in the same period.
The 12 public sector banks delivered yet another strong performance in the October-December quarter of FY23, with a net profit of ₹29,175 crore, representing a 63% YoY increase.
However, despite these strong earnings, banking stocks are trading lower in the market. Experts suggest that this is due to some profit booking as the market sentiment remains weak due to uncertainty over rate hikes and economic growth.
Adding to the uncertainty is the ongoing Adani-Hindenburg saga, which has raised concerns about the PSU banks' exposure to the Adani Group.
Among other sectoral indices, Nifty Metal was the biggest drag in February, with a fall of nearly 18.55%. The heightened recession fears in the developed economies and China's sluggish industrial demand, coupled with weak earnings in the December quarter, have knocked down metal stocks.
For the October-December quarter of FY23, major steel companies posted a sharp drop in their earnings, owing to higher energy costs and slowing demand.
Further, the Nifty IT index began February on a positive note, building upon its gains from the previous month. However, it struggled to maintain this momentum as negative market sentiment began to prevail. As the month progressed, the index started showing a downward trend, and it ended the month with little change.
Overall, in February, only ITC and Tech Mahindra managed to gain more than 5% in the Nifty 50 Index, whereas other stocks such as Ultratech Cement, Bajaj Finance, ICICI Bank, Apollo Hospitals, and Asian Paints ended the month higher in the range of 2-4%.
On the flip side, 33 stocks closed in negative territory. Adani Enterprises was at the forefront with a decline of 54.15%, followed by HDFC Life Insurance Company and Divi's Laboratories, which dropped by 15.55% and 14.78% respectively.
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