Markets down on P-Note scare, China woes

Sensex falls 550 pts, the most in 7 weeks; Metal, capital goods stocks lead decline; Bajaj Auto only gainer among Sensex stocks

The Indian stock market saw its worst performance in about seven weeks, owing to a crisis in China and adverse remarks on participatory notes (P-notes) by a special investigation team (SIT) of the Supreme Court.

Fears of a negative impact on foreign flows saw the BSE Sensex fall 550.93 points, or 1.96 per cent, to close at 27,561.38. The National Stock Exchange Nifty fell by a similar margin to close at 8,361.

Of the Sensex 30 stocks, 29 closed with losses.

Monday’s fall came amid a terrorist attack in Punjab that reportedly left at least 10 dead. Experts, however, said this didn’t have a direct impact on market sentiment, as investors typically focused on broader economic trends in emerging markets, as well as company-specific news.

The Supreme Court SIT had suggested the Securities and Exchange Board of India (Sebi) tighten regulations pertaining to P-notes. Foreign investors use these instruments to take exposure to India without registering with Sebi. Though many do so for ease of operations, the SIT suggested tax evaders could also be using this route.

The route accounts for Rs 2.75 lakh crore of investment into India.

On Monday, the Chinese market fell 8.5 per cent, its steepest decline since 2007. Media reports said the fall was on account of a failed attempt by the Chinese government to stem a stock market rout. The Shanghai Composite index was down 8.5 per cent, following a decline in profitability in June. Though the Chinese government has made several interventions to stem the fall in markets, stocks continued to decline on Monday, following some relative stability in previous sessions.

Reports indicated in China, 1,500 stocks fell by more than 10 per cent, and 2,170 of the 2,247 companies ended with losses on Monday.

Experts said global cues, too, contributed to the decline in Indian market. “There is nervousness in global markets, especially the Chinese market, which influenced markets here. People are also keeping an eye on the US Fed meeting to be held later this week,” said Gautam Chhaochharia, head of research (India), UBS.

The US central bank has indicated it would look at raising interest rates this year. Some believe this might have a negative impact on emerging markets such as India.

“The problems pertain to black-money related issues, a fall in China and the non-functioning of Parliament,” said Deven Choksey, managing director, K R Choksey Securities.

A logjam in Parliament is expected to have an impact on the National Democratic Alliance government’s reform agenda, based on which the markets hit new highs this year.

On Monday, Tata Steel was down 5.17 per cent, while Hindalco fell 4.4 per cent on sharp falls in the Chinese stock market. China accounts for most of the world’s metal demand. Reliance Industries was down 1.88 per cent. The only stock to end with gains was Bajaj Auto, which was up 0.41 per cent. The company reported record profits last week.

The capital goods and metals sectoral indices were the biggest losers, falling 2.8 and 2.29 per cent, respectively. The auto, realty, power and banking indices fell about two per cent each.

Foreign portfolio investors were net sellers by Rs 859.94 crore. Domestic institutions were net buyers by Rs 238.66 crore.

Securities worth Rs 3.11 lakh crore changed hands on Monday, against the daily average of Rs 3.06 lakh crore through the past month.

Ramesh Damani, member, BSE, said, “My sense is this won’t be a protracted fall; it is only a knee-jerk reaction.”