Markets witness bloodbath amidst election uncertainties

Indian equity benchmarks plunged sharply on Tuesday, losing nearly 6 percent in the session, after the counting of votes showed Prime Minister Narendra Modi's BJP-led NDA alliance past the majority mark but not registering a landslide victory as predicted by most exit polls. After an initial drop, the markets continued to decline, as traders remained cautious as S&P Global Market Intelligence asserts that weak private consumption in India remains the largest concern, with rural demand in particular still straggling to catch up, at a time when the country's overall growth remains strong. For the second consecutive quarter, India's real GDP growth exceeded most forecasts, bringing the full financial year 2023-24 growth to 8.2 per cent. With this, India maintains its status of the world's fastest-growing large economy. 

Market made some recovery in second half of the day after hitting intraday lows as traders opted to buy beaten down but fundamentally strong stocks. Though, the recovery was not enough to cut most of the losses and key gauges ended with a massive cut of around 6%. Anxiety also came as credit rating agency India Ratings and Research (Ind-Ra) in its latest report has predicted that FY24 was a bittersweet year for the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC), with the average resolution time jumping to a four-year high and the recovery levels at their lowest for corporate debtors (CDs) and financial creditors (FCs) in the past four years.  Traders overlooked a private report stating that strong growth and a narrower fiscal deficit can lead to a sovereign rating upgrade for India. It said the government's commitments on fiscal deficit to 5.1 per cent in FY25 and further down to 4.5 per cent in FY26 look more credible now, and pointed out that the number came in at 5.6 per cent in FY24 as against the budgeted 5.8 per cent. 

On the global front, European markets were trading lower as investors looked ahead to Thursday's European Central Bank (ECB) meeting and the release of the all-important U.S. employment report on Friday for directional cues. Asian markets settled mixed on Tuesday, as global investors consider the prospect the US economy ‘exceptionalism’ is starting to unwind as manufacturing activity in the world's largest economy further weakened. 

Finally, the BSE Sensex fell 4389.73 points or 5.74% to 72,079.05, and the CNX Nifty was down by 1,379.40 points or 5.93% points to 21,884.50.   

The BSE Sensex touched high and low of 76,300.46 and 70,234.43 respectively. There were 5 stocks advancing against 25 stocks declining on the index.

The broader indices ended in red; the BSE Mid cap index fell 8.07%, while Small cap index was down by 6.79%.

The lone gaining sectoral index on the BSE was FMCG up by 0.15%, while PSU down by 15.68%, Utilities down by 14.40%, Power down by 14.25%, Oil & Gas down by 13.07% and Capital Goods down by 12.06% were the top losing indices on BSE.

The top gainers on the Sensex were Hindustan Unilever up by 6.00%, Nestle up by 3.09%, TCS up by 0.23%, Asian Paints up by 0.18% and Sun Pharma up by 0.12%. On the flip side, NTPC down by 15.45%, SBI down by 14.42%, Larsen & Toubro down by 12.69%, Power Grid Corporation down by 12.38% and Tata Steel down by 8.87% were the top losers.

Meanwhile, S&P Global Market Intelligence has asserted that weak private consumption in India remains the largest concern, with rural demand in particular still ‘straggling to catch up’, at a time when the country's overall growth remains strong. For the second consecutive quarter, India's real GDP growth exceeded most forecasts, bringing the full financial year 2023-24 growth to 8.2 per cent. With this, India maintains its status of the world's fastest-growing large economy. S&P Global Market Intelligence said India's strong GDP data added market optimism shortly ahead of the general election results to be announced on June 4. arguing private consumption in the country is weak, it noted ‘While positive, the headline figure does not remove concerns above the underlying strength of the economy and continues to point to uneven recovery’.  

It stated ‘Weak private consumption remains the largest concern, with rural demand in particular still straggling to catch up to India's strong overall growth. Latest high frequency data does signal that the rural demand is starting to pick up. An increase in two-wheeler sales and demand for diesel, as well as lower demand for the rural job guarantee scheme are all positive signs that the rural consumption may turn around in the coming quarters’. It also cautioned on the cloudy food inflation outlook. Food inflation in India has been consistently high. A moderation in inflation is observed since the start of 2024 but food prices remain persistently high. Retail inflation clocked 4.83 per cent in April 2024, the lowest in the past 11 months. Retail inflation in India, though, is in RBI's 2-6 per cent comfort level but is above the ideal 4 per cent scenario. Food price inflation was at 8.70 per cent in April, way above the headline figure. It noted ‘Further easing of food prices strongly hinges on the upcoming monsoon season, which so far is projected to be normal but remains a significant risk’.

Overall, S&P Global Market Intelligence projects private consumption to improve gradually to grow 6.9 per cent in the current financial year 2024-25. Private investment should also continue to recover, supported by stronger capacity utilization and overall demand. S&P Global Market Intelligence expects India's real GDP growth to slow to 6.7 per cent in 2024-25. Separately, S&P Global Ratings last week revised its rating outlook on India to positive from stable, and added that it expects continuity in economic reforms and fiscal policies regardless of the Lok Sabha election outcome. It attributed robust economic growth, pronounced improvement in the quality of government spending, and political commitment to fiscal consolidation to the rating upgrade.

The CNX Nifty traded in a range of 23,179.50 and 21,281.45. There were 13 stocks advancing against 37 stocks declining on the index.

The top gainers on Nifty were Hindustan Unilever up by 5.78%, Britannia Industries up by 3.33%, Nestle up by 3.27%, Hero MotoCorp up by 3.16% and Tata Consumer Products up by 1.68%. On the flip side, Adani Ports & SEZ down by 21.40%, Adani Enterprises down by 19.07%, ONGC down by 16.23%, NTPC down by 14.52% and Coal India down by 13.54% were the top losers.

European markets were trading lower; UK’s FTSE 100 decreased 38.36 points or 0.46% to 8,224.39, France’s CAC fell 68.41 points or 0.86% to 7,929.61 and Germany’s DAX lost 221.37 points or 1.19% to 18,386.79.

Asian markets settled mixed on Tuesday, tracking Wall Streets’ mixed overnight closing as soft factory activity and construction spending data added to signs the US economy is gradually slowing down and fuelled hopes for interest-rate cuts by the Federal Reserve this year. Seoul shares declined on profit booking and after data showed that South Korean consumer inflation slowed to a 10-month low but still remained above the central bank's 2% target. Japanese shares dropped as a firm yen weighed on investor sentiment. Chinese and Hong Kong shares gained by recent stimulus measures announced for the property sector. Chinese manufacturing activity grew at its fastest pace in nearly two years last month - a private sector survey of purchasing managers showed, and that contrasted with a surprise fall in the broader official survey of purchasing managers.