Nowhere was the knee-jerk reaction felt more acutely today than in the metals space. The Nifty Metal index plummeted nearly 7 per cent in one of the biggest sell-offs the sector has seen since the dark days of March 2020. Much of that selling was in steel stocks, which reflected in
’s 10 per cent fall.
For steel companies, their biggest source of demand in the pandemic era is under threat given China’s status as the largest commodity consumer. Moreover, the 22 per cent crash in global ore prices (triggered by China) has dented the outlook on further price increases in the sector for the remainder of the year.
With valuations being punchy as it is, a hazy outlook isn’t the ideal scenario for investors of steel stocks.
China counters suffer
Metal stocks weren’t the only bunch to suffer from a deteriorating outlook for the Chinese economy. Shares of UPL, Tata Motors and Motherson Sumi sank 3-5 per cent as their investors were worried that a deep economic slowdown in the world’s second largest economy will hurt revenues of the three companies.
UPL, Tata Motors and Motherson Sumi have significant exposure to the Chinese economy via the agriculture and automobile market, respectively. A credit crisis that could engulf the country will be bad news for demand.
ITC-HUL double act
Well they aren’t laughing at ITC investors now, are they? On a day when almost one out of every four stocks ended in the red and only seven stocks of the Nifty50 rose, ITC managed to hold fort for the market alongside Hindustan Unilever.
The FMCG double act became the umbrella under which investors sought safety on a day of acute risk aversion in the global markets. Shares of ITC ended 1 per cent higher, while those of HUL closed nearly 3 per cent up. The gains in both the stocks also meant that the Nifty FMCG index was the sole winner among sectoral indices on the NSE.
Retail pets downbeat
While the sell-off was assumed to be led by foreign investors, checks with dealers suggested that selling from the cohort was largely limited. On the other hand, dealers said that retail investors were dumping positions in the market as if the government had announced a new lockdown.
The selling pressure from retail investors was most visible in the smallcap and midcap space where stocks took a hammering despite having no direct correlation to the China situation. The Nifty Midcap 100 and Nifty Smallcap 100 index tanked 2.2 per cent and 1.7 per cent each. So much for diamond hands, eh?
VIX says there is more to come
Keen observers of the market would have told you last week that today’s move was coming. The volatility gauge India VIX had risen through most parts of last week when benchmark indices were tracing record highs.
Today, the volatility gauge spiked nearly 15 per cent and remained elevated till the end of the session, suggesting that worried investors are now loading up on Put options of the index to protect their downside. With the mainland Chinese market yet to open and uncertainty looming over Evergrande’s fate, one worries if today was the beginning of the first major correction of this bull market.
