Indian Markets on Edge: Global Difficulties Outweigh Eased Inflation

- By Anubha

The Indian share market ended the short week on a sour note on March 13, with bad sentiment dominating the market despite optimism generated by lower-than-expected inflation data released in India as well as that of the United States. Sensex and Nifty, India's domestic indices, were weakened, especially so by sectors such as automobile and information technology (IT), which recorded massive declines.

The Sensex closed the session lower by 200.85 points, or 0.27%, at 73,828.91, and the Nifty closed lower by 73.30 points, or 0.33%, at 22,397.20. While there was a good start on the back of positive global leads, including softer-than-expected inflation numbers from the U.S., the domestic benchmarks lost momentum as the day progressed. The breadth of the market also continued in the negative territory, with 1,463 stocks advancing, 2,348 declining, and 123  remaining unchanged, indicating across-the-board selling pressure.

World Inflation Figures Pour Fuel on Optimism, But Concerns Linger

The world markets reacted favorably to the U.S. inflation reading in February, which was weaker than expected. The U.S. inflation was slowing down, and there was hope that the Federal Reserve would have greater room to reduce interest rates. This would be some relief to the world economy, particularly to rate-sensitive markets. Locally, India's inflation figures also picked up, with its Consumer Price Index (CPI) in February recording at a seven-month low of 3.61%, below the Reserve Bank of India's (RBI) target level of 4%. That was lower than Reuters' forecast of 3.98%. The decline in inflation raised expectations that the RBI would take a more dovish stance in its subsequent monetary policy releases, possibly pointing to further rate cuts to stimulate growth.

However, despite the comforting inflation reports, the entire market remained weighed down by the persisting global uncertainties like geopolitical tensions, concerns over oil price hikes, and threats of the major economies' recessions. These macroeconomic issues seemed to overshadow investors' views with respect to the domestic inflation reports, thus evoking overall sell-offs in the majority of the sectors. 

Global Tariff Policies Contribute to Economic Slowdown and Market Uncertainty

Compounding the global uncertainty, the U.S. tariff policies under former President Donald Trump are adding pressure to the global economic slowdown, with repercussions reaching the Indian markets. According to the Organisation for Economic Co-operation and Development (OECD), Trump's tariffs, aimed at curbing trade deficits, have been escalating tensions with major trading partners, leading to retaliatory measures and a tightening of the global supply chain. This situation is causing businesses worldwide to hold back on investments, fearing the growing unpredictability of trade relations.

The OECD's quarterly report indicates that these tariffs are not only stifling global economic growth but are also reigniting inflationary pressures. With the added uncertainty, the Indian market is feeling the strain as foreign investors pull back from riskier assets, including Indian equities. As global trade slows and inflation remains elevated, Indian sectors reliant on imports, like automobiles and technology, are particularly vulnerable to rising costs and shrinking margins.

Sectoral Performance: IT and Automobile Stocks Hit Hard

The Nifty IT index was one of the worst-hit sectors on March 13. The index continued to dip, sliding over 1% and entering bear market territory, falling over 21% from the peak. This was also initiated by sharp selling in leading IT stocks like Wipro, TCS, Infosys, HCLTech, and Tech Mahindra, all of which closed in the negative. The sharp losses on the tech side reflect broader concern about rising costs, declining demand for tech services, and fear of an economic slowdown expanding around the globe.

Though the IT sector is also witnessing a bearish trend, experts expect further downside in mid-cap IT stocks. Shah sees scope for growth, however, in midcap IT names that could perform better in the near term as investors prefer growth at relatively lower valuations. This suggests the likelihood of a rotation in the sector where large-cap stocks are underperforming while midcap companies could offer better growth prospects.Automobile stocks also fell under the pressure, with the Nifty Auto index finishing over 1% lower. Tata Motors and Bajaj Auto were two of the worst performers of the Nifty, reflecting investor concern over weakening consumer demand, increased input costs, and falling global trade.Simultaneously, Nifty Realty and Nifty Media indices also came down sharply, both falling almost 2%. The Nifty Realty index, in particular, has come under stress from rising borrowing costs, which could have an impact on home loan affordability and housing demand.

Upbeat Trends in Specific Stocks

Though the overall market fell, there were specific stocks that went against the trend and went up. They include Adani Green Energy, which advanced by over 2% as Macquarie initiated coverage on the shares with a "strong buy" recommendation and price target of ₹1,200. Adani Green Energy was cited by the firm to enjoy good growth prospects in the transition to green energy in India with a CAGR in EBITDA by 25% within five years. With a ambitious goal to achieve 50 GW of renewable energy capacity by FY2030, the firm continues to lead India's green energy revolution.Mahanagar Telephone Nigam Ltd. (MTNL) also saw a massive rally, with shares rising over 12% after the government announced that MTNL made over ₹2,134 crore from disinvestment of land and building assets. The government-sponsored move can improve the financials of the company, creating investor expectations.Market Trends: Small-Caps Under Pressure

The broader market also faced the brunt, with the Nifty Midcap index falling 0.8% and the Nifty small cap index falling over 1%. Midcap and small cap segments are relatively riskier, and when there is market uncertainty, stocks of such kind are vulnerable to selling pressures. At times of market volatility like these, investors want to take shelter in more liquid, stable larger-cap stocks or segments, and smaller stocks are left to face outsize declines.

Technical Analysis: A Turning Point for Nifty

Technically, experts saw the formation of a symmetrical triangle pattern on the hourly chart of Nifty index. The pattern typically suggests a continuation of the prevailing trend, be it upward or downward. The Nifty index has been ranging between 22,350 and 22,550 in recent sessions, and a breach above the level of 22,550 can signal a likely short-term rally. Conversely, a breakdown below 22,350 can weaken market sentiment, leading to increased selling pressure. This technical analysis suggests that the market is poised at a breaking point and investors need to remain vigilant for some sign of breakout or breakdown.

Looking Ahead: What's Next for the Market?

In the future, the market is in a delicate balancing act. On the positive side, India and the U.S. are presenting softer inflation readings, and there is some hope for stabilization in the economy, and central banks may start easing monetary policy. On the negative side, persistent global uncertainties such as geopolitical tensions, energy price volatility, and uncertainty over economic growth continue to weigh on market sentiment.For investors, the situation calls for caution. While the downtrend in the major indexes could offer opportunities in some stocks, particularly in the midcap and smaller universe, a general risk-off sentiment means that the market will continue to be volatile in the near term.

Conclusion

The market performance on March 13 is a reminder of the complex and sometimes contradictory forces at work in the world economy. Domestic inflation numbers may be a promise of dovish monetary policy, but it is overall global risks that continue to be at the back of investors minds. With IT and auto segments in distress and the overall market seeing selling in mid and small-cap stocks, investors must keep an eye closely on how the markets shape up in the next couple of weeks. The technical view also suggests a turning point for the Nifty, where the direction of the market in the very short term could be decided in the next few sessions.