Indian stock markets closed in the red on Friday after the government cut its economic growth estimates for FY16 to 7% from 7.5% in its mid-year economic review. The benchmark indices lost a little more than 1% in a selloff triggered in the last hour of trading as the study was tabled in Parliament.
Major sectoral indices closed in the red. Shares of Vedanta (-3.21%) and Lupin (-2.1%) emerged as the top losers in the Sensex during the session.
“The investor sentiment was negatively impacted by the government’s reduced GDP growth target” said Vinod Nair, head – fundamental research, Geojit BNP Paribas Financial Services. The market is expected to remain volatile in near term due to weak domestic cues such as uncertainty over the passage of the GST Bill, Nair added.
The government has already announced that GST can only be rolled out by March 2017 as opposition parties stalled the proceedings in Parliament.
Even as the markets snapped its four-day winning streak, benchmark indices registered first weekly gains in three weeks. The Sensex advanced 1.9% week-on-week, while the Nifty gained nearly 2%.
Technology shares ended positive this week despite revenue warnings and a two-fold increase in special fee on the H-1B and L-1 visas by the US. The CNX IT index ended the week with 0.71% gain. India’s largest IT company, TCS, as well as Wipro cautioned investors of a material impact to third quarter revenue by floods in Chennai. However, the IT index lost nearly 1.2% in the previous three weeks.
US-based investment banking firm Jefferies opined that Chennai floods will have an impact on all top five Indian IT companies, as these companies have development centres in Chennai. ”Given the low margin of safety for the stocks in the sector and an obsessive focus on every percentage point of growth, the impact could be meaningful, especially given the weak seasonality in the quarter due to furloughs and lesser number of working days,” Jefferies said in a note to investors.
Foreign portfolio investors (FPIs) net purchased $37 million worth of equities in the cash segment during the week, Bloomberg data showed. The Street has witnessed selling by overseas investors this month anticipating a rate hike by the US Federal Reserve — the first such increase in nearly a decade. Foreign funds have net sold equities to the tune of $450 million since December 1.
International brokerages maintain ‘overweight’ stance on India due to strong macroeconomic indicators and low fiscal deficit. US investment banking firm Morgan Stanley in a note to investors said India will fare better than its emerging markets (EM) peers.
“We look for turn in earning, more policy action, revival in consumption and style shiftaway from quality and continuing domestic flows into equities,” said Ridham Desai, MD and head of India research, Morgan Stanley.
Morgan Stanley in a research report said, “We expect continued lackluster earnings growth at midcap NBFCs in 2016 and further downside to stocks. We expect fundamentals to weaken in 2016 after relatively good 2015 and see limited upside in stocks.”
