Stock market crash: Why equity investors lost Rs 6 lakh crore on Thursday

Bear hammering on Dalal Street eroded over Rs 6 lakh crore of investors’ wealth on Thursday due to subdued global cues and rising concern over inflation. Following the selloff, the market capitalisation of BSE-listed firms declined to Rs 249.72 lakh crore in the afternoon trade at around 12.45 pm (IST) from Rs 255.77 lakh crore on May 18. 

 

The benchmark BSE Sensex traded nearly 1,300 points, or over 2 per cent, down at 52,913. On the other hand, the 50-share NSE Nifty index was down 392 points, or 2.41 per cent, at 15,848. On a month-to-date basis, the market valuation of BSE-listed firms has tanked by over Rs 17 lakh crore so far in May 2022. 

 

Market watchers believe that sentiment took a hit after the United Nations significantly lowered its forecast for global economic growth this year from 4 per cent to 3.1 per cent, saying the war in Ukraine has triggered increasing global food and commodity prices and exacerbated inflationary pressures, upending the fragile recovery from the Covid-19 pandemic. 

 

On the global front, Asian markets traded in the red after Japan posted a merchandise trade deficit of 839.2 billion yen in April, the Ministry of Finance said on Thursday. 

 

Parth Nyati, founder, Tradingo said, “Global inflation has become the biggest spoilsport and has derailed the economic growth recovery globally. The post-pandemic inflation which was once believed to be transient has now become an entrenched one.” 

 

Inflation rates are at a 40-year high in countries like the UK, and USA. The American retail majors Walmart and Target have disappointed on the Q1 earnings front, indicating that even large companies are unable to cope with the supply chain and inflationary woes. 

 

“This has created a huge sell-off and meltdown in the majority of the stock markets globally. India's WPI inflation jumped to a 17-year high, this will force RBI to further hike interest rates. All these factors have collectively led to over a 2 per cent fall in Nifty and Sensex. However, we believe that investors must be greedy when others are fearful and use this opportunity to lap up quality shares with good growth prospects and reasonable valuations,” Nyati added. 

 

Vinod Nair, head of research, Geojit Financial Services said, “UK’s soaring retail inflation number along with Fed Chair’s reassurance on bringing down the inflation, disturbed the sentiment, risking sharper rate hikes. With prospects of a sizeable interest rate hike by the global central banks, investors are advised to allocate higher weightage to sectors that are least affected by such policies like defensives.” 

 

The RBI’s MPC members highlighted concerns of spillovers from global inflation emanating from ongoing geopolitical conflicts and supply-side disruptions. 

 

Kotak Institutional Equities said, “Members acknowledged the need for reasonable policy actions to tame inflation while expressing relief over relatively better growth prospects. Even as we retain our base case repo rate hike of 40 bps (along with a 50 bps CRR hike) in the upcoming June policy, we do not rule out an outside chance of a 50 bps hike given the need for the conventional moves of multiples of 25 bps. Overall, we pencil in cumulatively further repo rate hikes of 110-135 bps by end-FY2023.” 

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