Credit concerns rattle stock mkts for 5th straight session, spook investors

NBFCs, trade tensions, crude oil drag benchmark indices down 1.5%, Nifty falls below 11,000

Indian markets closed in the red for the fifth straight session on Monday as concerns about credit quality of non-banking financial companies (NBFCs), which had spooked Dalal Street last Friday, continued to rattle investors.

Global cues also remained weak as the trade tensions between the US and China escalated further. The benchmark Sensex fell 537 points or 1.46 per cent to close at 36,305, while the broader Nifty closed 175 points or 1.6 per cent lower at 10,967.

Foreign portfolio investors (FPIs) sold shares worth Rs 5.2 billion while domestic institutions purchased shares worth ~15.2 billion on Monday.

The sell-off was sharper in the broader markets with the BSE Mid-cap and Small-cap indices falling 2.4 per cent and 2.7 per cent, respectively. The market breath also remained negative, with four stocks declines for one advance on the BSE.

The joint statement from the Reserve Bank of India and the Securities and Exchange Board of India on Sunday that both regulators were closely monitoring recent developments and were ready to take appropriate action failed to address the concerns of the investors.

On Monday morning, Jaitley also tweeted: “The government will take all measures to ensure that adequate liquidity is maintained and provided to the NBFCs, the mutual funds and the SMEs.”

Market participants expect the volatility to continue in the medium-term on account of several domestic and global headwinds.

The ongoing crisis in the banking and the NBFC sectors, along with heightened political activity on account of state and general elections, could prove challenging. Brent crude oil prices crossed $80 a barrel and have surged over 30 per cent this year, leading to further worries for investors.

On the global front, the continuing stand-off between the US and China — the two largest economies — and fall in currencies of emerging markets (EMs) are key threats, said experts.

“The impact of these events would be limited to the short-term. In the long run, markets continue to look positive. They also seem to have factored in some of the risks such as the elections,” said Sunil Singhania, founder, Abakkus Asset Manager.

The fall on Monday was led by banks and financial services stocks, as their sectoral indices on the BSE fell 2.4 per cent and 3.5 per cent, respectively.  

Concern over the NBFC stocks also had a rub-off effect on all the interest rate-sensitive sectors such as automobiles, real estate, and consumer durables. Experts said there were concerns in the market that weakness in NBFCs could lead to a shortage in credit and also make borrowing more expensive.

The BSE Realty index, a gauge of real estate stocks, fell over 5 per cent — steepest among sectoral indices. The BSE Auto and BSE Telecom indices fell 3.7 per cent and 3.3 per cent, respectively.

In the Sensex, 24 stocks closed in the red, with shares of Mahindra & Mahindra losing 6.5 per cent.

HDFC and HDFC Bank shares fell 6.2 per cent and 2.2 per cent, respectively. Together, these two accounted for 280 points. Shares of IndusInd Bank, Adani Ports and Bharti Airtel, too, fell more than 4 per cent each.

On the other hand, there was buying interest among the information technology (IT) stocks, with Tata Consultancy Services and Infosys shares gaining 4.5 per cent and 1.5 per cent, respectively.

With volatility in the markets surging, brokerages are increasingly advising their clients to go slow on fresh investments and book profits in sectors such as banking and fast-moving consumer goods.

“The markets are priced for perfection. The risk-reward is not attractive at all. We would still advice investors to book profit. We are still away from levels where we can buy,” said Gautam Chhaochharia, managing director and head, India research at UBS.

The current correction in the equities comes after a record run in the benchmark indices over the past two years. The market-beating performance in sectors such as financials and FMCG also led to a sharp surge in valuations of these stocks.