Markets decline third straight week on FII sell off

Pharma and energy shares were the top losers with ONGC and Sun Pharma leading the fall

Benchmark share indices ended lower for a third straight week after foreign funds continued to press sales in equities while a slump in the prices of commodities led to a sell-off in global markets. Further, sluggish September industrial output and rise in October consumer price inflation also dampened investor sentiment.

In the truncated week to November 13, 2015, the 30-share Sensex ended down 2.5 per cent, or 655 points, to end at 25,611 and the 50-share Nifty closed 2.4 per cent, or 192 points, lower at 7,762.

However, a divergent trend was seen in the broader markets after the BSE Midcap index slipped 1.6 per cent, while the Smallcap index ended 0.7 per cent higher.

“Though there’s hardly any indication of reversal in trend, we feel oversold positions will trigger some rebound first in the coming week. Having said that, we reiterate our advice for traders to be with the broader trend and use bounce to go short in index. On the other hand, stocks may continue to trade volatile so they should hold positions in both directions,” says Jayant Manglik, president (retail distribution), Religare Securities.

The government had on Tuesday eased the foreign direct investment regulations in 15 sectors with single-brand retail, private sector banking, construction, defence and broadcasting being the major beneficiaries. The Department of Industrial Policy & Promotion also raised the cap for approval by the Foreign Investment Promotion Board to Rs 5,000 crore from Rs 3,000 crore earlier.

Industrial output grew at a slower-than-expected pace of 3.6 per cent in September, dampened by a slower expansion in the mining sector. Further, the retail inflation climbed to a four-month high of five per cent in October as food prices escalated on supply deficiency in pulses. Consumer price index based inflation stood at 4.41 per cent in September 2015.

Foreign funds remained net sellers after robust US jobs data raised the prospects of a rate hike by the US Fed. Foreign institutional investors (FIIs) were net sellers in equities to the tune of Rs 713 crore on Friday, according to NSDL data. During the first two weeks of November, FIIs were net sellers in equities worth Rs 2,505 crore.

Meanwhile, global index provider MSCI at its semi-annual index review on Thursday announced the inclusion of Cadila Healthcare, Maruti Suzuki, Ashok Leyland and Tata Motors to its MSCI India index and removed DLF and Oil India. The changes are effective from November 30, 2015.

InterGlobe Aviation, the operator of IndiGo airline, cruised to higher altitudes after its listing this week with the stock rising 30 per cent over its offer price of Rs 765 in three trading sessions. Further, reports suggests that index provider FTSE is likely to add IndiGo to four of its indices, including FTSE All-World Index and FTSE Global Large Cap Index with effect from November 18, 2015.

Auto shares ended mixed with passenger car makers in an overdrive while two-wheeler majors took a pause. Tata Motors said its global sales, which include Jaguar Land Rover, rose 13.3 per cent at 92,949 units in October 2015 against 82,026 units in October 2014.

Surprisingly, defensive sectors such as information technology, pharma and consumer goods also witnessed selling pressure with pharma stocks losing the most. While Sun Pharma posted weak earnings, Dr Reddy’s said it received a warning letter from the US Food and Drug Administration over quality control issues at three of its manufacturing facilities.

Sun Pharmaceutical Industries’ net profit declined 46 per cent to Rs 1,107 crore in the second quarter of FY16, compared to same period last year. Consolidated revenue fell 15 per cent to Rs 6,837 crore against Rs 8,039 crore in the same quarter last year.

Reliance Communications plunged nearly 15 per cent during the week after several brokerages reduced the company’s earnings estimate for the rest of the financial year. The fall in market value would be bad news for Russian telecom company Sistema, which announced an all-stock merger with RCom early this month. Under the deal, Sistema was to hold 10 per cent equity in RCom’s increased equity capital.

Week ahead
With the September quarter earnings season coming to an end, the markets are likely to focus on global cues, while the slump in global commodity prices are likely to impact energy and metal stocks.

The equity shares of S H Kelkar and Company are scheduled to be listed for trading on stock exchanges on Monday, November 16, 2015.

Further, market participants will now focus on October wholesale price index, or WPI data, which is due for release on November 16, after a sharp rise in consumer price index, or CPI, during October.

On the global front, on November 18, the Federal Open Market Committee will release the minutes of its last policy meeting held on October 28.