It’s a sea of red for the markets this morning. The weak global cues weighed on investor sentiment and the Nifty and Sensex are down sharply in early trade. What’s particularly important is that the Nifty is now trading close to the key 22,300 mark. Most analysts have identified this as the primary support zone for the markets in the near-term.
The Nifty IT Index is one of the big sectoral losers and the key stocks that saw maximum damage include Coforge, HCL Tech and Infosys. The broader markets are also under pressure and the BSE Smallcap and the BSE Midcap Indices are down over a percent each in morning trade.
Speaking on the market movement this morning, Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services pointed out that, “Stock markets dislike uncertainty, and uncertainty has been on the rise ever since Trump was elected the US president. The spate of tariff announcements by Trump has been impacting markets and the latest announcement of additional 10% tariff on China is a confirmation of the market view that Trump will use the initial months of his presidency to threaten countries with tariffs and then negotiate for a settlement favourable to the US. How China responds to the latest round of tariffs remains to be seen. Even now the markets have not discounted a full blown trade war between the US and China. It is likely to be avoided. However, the uncertainty element has increased as reflected in the sharp spike in CBOE volatility index to 21.13.”
Five reasons why the stock market is falling today are –
1. US markets see sharp correction
The sharp fall in US markets on the back of disappointing data was one of the primary reasons for the fall in Indian markets today. The Nasdaq composite slumped 2.8%, to 18,544.42. The S&P 500 fell 1.6%, to 5,861.57 while the Dow Jones Industrial Average fell 193.62 points, to 43,239.50. The deep cuts were primarily on the back of concerns about the US economy’s future and concerns about implications of the new tariffs.
2.US confirms tariff on Mexico, Canada from next week; additional tariff on China
US President Donald Trump has confirmed that the whopping 25% tariffs on Mexico and Canada will come into effect from March 4. Trump also announced that imports from China will also see a levy of additional 10%. Earlier after the announcement, the US President had given a 1-month time but according to him as ‘drugs are still pouring into our country’ he has gone ahead with the tariff hike. According to the Reuters report, Trump told reporters that the fresh tariffs on “Chinese imports would stack on top of the 10% tariff that he levied on February 4 over the fentanyl opioid crisis, resulting in a cumulative 20% tariff.”
3. Disappointing US Data
The data from US has also added to the negative sentiment in the market. The fourth quarter US economic data indicated further slowdown and the loss of momentum continues amidst concerns that tariffs will hurt spending through higher prices. The Q4 US GDP has come in at 2.3%. Moreover, US weekly jobless claims have also posted largest gain in five months indicating more people have filed for unemployment benefits indicating a rise in unemployment.
4. FII selling continues
The relentless FII selling continues in the Indian market. So far in February, FIIs have sold over Rs 46,000 crore and if we combine it with the January numbers, FII outflow has been over Rs 1.33 lakh crore in January so far. The biggest concern for the FIIs have been the relative valuation of the Indian markets and the strengthening dollar that makes investment in dollar denominated assets more attractive. However Dr. V K Vijayakumar of Geojit Financial Services is hopeful of the trend reversing going forward and the extent of outflows reducing, “Since largecap valuations are fair, and in pockets attractive, FIIs are unlikely to press selling as aggressively during the last few months. Long-term investors can utilise the weakness in the market to slowly accumulate fairly-valued quality largecaps and select fairly-valued stocks in the broader market, like defence stocks for instance.”
5. Valuation worries
The valuations, especially in the small and midcaps continue to be a worry for the investors. The latest report from Nomura indicates that the valuation of MSCI India, though down from 24x levels in October, is still higher that the average valuation of 19x seen between 2015-2022. As reported by Financial Express.com, Nomura, the key near-term risk include, “further multiple compression and some earnings downgrade risk.” Valuations is one of the key concerns.