Sensex fell to a one-month low of 26,552.92 points on Wednesday. (Photo: PTI)
The Sensex fell to a one-month low of 26,552.92 points on Wednesday, wiping out early gains in the last one hour of trade as concerns on weak corporate earnings, the US Federal Reserve’s lift-off in December and the outcome of the Bihar state election weighed on investors. Wednesday’s weak closing was the seventh in the last eight sessions over which the Sensex has given up nearly 925 points or 3.5%. Foreign portfolio investors (FPI) have pulled out a little over $810 million from the stock and bond markets in the last six sessions.
The selling appears to have hurt the rupee — the Indian currency, which slipped below the 65 mark against the dollar on October 29 and hit 65.65 on Tuesday, has failed to recover meaningfully, closing at 65.48 on Wednesday.
Foreign funds have shown a large appetite for bonds this year, having bought $8.45 billion worth of paper while the stock market has seen inflows of just $4.33 billion.
Bank of America Merrill Lynch chief economist Indranil Sen Gupta views this as a “litmus test time” for Indian markets. Sen Gupta has highlighted three key risk events — the Bihar election, Fed rate hike, and turnaround in earnings — in the near-term.
“An inconclusive US FOMC meeting last week prolongs the uncertainty. The Bihar election appears too close to call, whereas in-house strategists expect FY16 earnings to downgraded to 8-10% from consensus 17%. We expect capital flows to turn around only after the market prices in our three event risks. The next two weeks will provide some clarity,” Sen Gupta said, adding that the Bihar poll will influence the course of economic reforms.
Despite the recent fall, the Indian market is the most expensive emerging market; the Sensex trades at at a one-year forward price-to-earnings (PE) multiple of 15.5 times compared with the MSCI Emerging Markets Index’s multiple of 11.4 times, Bloomberg data showed. Indonesia trades at 14.3 times forward while China trades at 13.5 times.
Meanwhile, the pulllout from the bond market over six straight sessions, executive director and head of ALM and trading at DBS Bank India Ashish Vaidya feels, could have been fuelled by apprehensions of a rate hike in the US as also a portfolio churn. “We believe the sell-off could continue for a few more days, post which it will stabilise,” Vaidya said.
According to Mixo Das, equity strategist, Asia ex-Japan, Nomura Holdings, the sharp decline in August-September and the October rallies in Asean markets have been largely driven by factors evolving in the US and China, and opined that both economies will continue to drive global equities. “To a large extent, both the decline over August-September and the October rally have been driven by markets’ evolving perceptions about US monetary policy and Chinese growth. We believe these drivers will remain in place over the rest of this year, particularly going into and immediately after the December FOMC (December 16-17), raising uncertainty about where Asean markets may end 2015,” Das said.
Industry observers said the market is also jittery due to weak technical parameters. The Nifty breached a crucial support of 8,088 last Friday and confirmed the continuation of a lower-top and lower-bottom formation on the weekly charts, indicating that the 50-share gauge could decline to 7,900 levels this week. “The markets are on a weak wicket technically,” Dhiraj Relli, MD and CEO, HDFC Securities, observed.
After rising more than 110 points in early trade on Wednesday, the Sensex closed at 26,552.92 points, down 37.67 or 0.14%. The Nifty settled at 8,040.20 points, down 20.50 or 0.25% from the previous close. The broader market surrendered gains to end weak. Eight out of 11 sectoral indices settled in the red.
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