The week couldn't have ended on a sourer note for Indian equity markets. Selling by some of the largest global investors continued in the backdrop of fears about inflation and rising interest rates. More importantly, analysts feel Indian indices have not yet hit bottom.
Market experts add that foreign institutional investors (FIIs) have been selling index stocks — companies that are part of the Sensex or Nifty — in large numbers as crucial support levels are breached, triggering stop-loss orders.
On Friday, the 50-share Nifty fell below the crucial level of 5,400 to end the day at 5,395.75, down 131 points, or 2.37 per cent. The index last fell below this level in July 2010. As several foreign investors, including exchange-traded funds (ETFs), track the Nifty’s movement when deciding on India investments, any fall below a crucial level triggers huge selling.
“India-focused ETFs and global funds are selling index stocks to meet redemptions,” says Vikas Khemani, head of institutional equities at Mumbai-based Edelweiss Securities. “Any pullback in the market is unlikely to be sustained. There is a possibility of the Nifty going down to 5,000-levels,” he added.
Meanwhile, the 30-share BSE Sensex lost 441.16 points, or 2.39 per cent, to a five-month low of 18,008.15. During intra-day trades, the index fell below the 18,000-mark for the second time this week.
The fact that investors are selling more index stocks was further corroborated by the relatively softer hit taken by the broader indices, including BSE Midcap and BSE Smallcap. Both lost less than 2 per cent each. Most other Asian markets remained shut on Friday on account of Lunar New Year.
Analysts are of the view that recent statements from the government that rising inflation could hurt India’s economic growth is leading to a lot of foreign money being pulled out. (Click here for table & graph)
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"The statement by the PM created fresh concerns in the market, which was trying to form a bottom at around 5,400 leading to a sell-off in the second half of the session," says Manish Shah, associate director (equities & derivatives), Motilal Oswal Securities.
Indian indices are the worst performers among all emerging markets globally in the current calendar year. According to Bloomberg data, both the Sensex and Nifty have lost a little over 12 per cent since January, exceeding all other indices.
Provisional data, meanwhile, show that FIIs have net sold Indian shares worth Rs 9,339 crore in this year so far. Domestic institutional investors, on the other hand, have been net buyers at Rs 6,740 crore.