Pessimism on macro factors; re-rating, slower growth feared
With the Sensex shedding 1,300 points in the last six trading sessions, market participants expect choppiness to continue given the negative macro-economic factors and expected tightening by the central bank.
Today, the markets were in a panic mode, with the Bombay Stock Exchange Sensex dipping 322.38 points, or 1.7 per cent, to close at 18,860.44, a level last seen in November. On the National Stock Exchange, the key CNX Nifty shed 97.35 points, or 1.7 per cent, and closed at 5,654.55. Marked with high volatility sessions, the week saw the Sensex fall 4.2 per cent and the Nifty four per cent.
Experts say Indian equities will remain bearish. Deepak Mohoni, director at trendwatchindia.com, says, “It’s looking like a bear market. There is a possibility that the Nifty may fall to the 5,000-5,300 level. There needs to be a strong rally in the next two trading sessions to reverse the current downtrend.”
According to analysts, the Nifty is very close to its 200-day moving average, which is around 5,600, and a fall below this will trigger further selloff. Foreign institutional investors (FIIs), after buying in the first two quarters, are preferring the western markets and those in other emerging economies. This week, FIIs sold shares worth Rs 3,671.2 crore, while for the year to date, the sale has been Rs 4,279.1 crore.
U R Bhat, managing director, Dalton Capital Advisors, said, “FIIs have lightened their positions. The outlook for the Indian market is neutral to negative.The country needs to position itself well in terms of monetary and fiscal action.” He also raised concerns about the widening current account deficit.
| FREE FALL | ||
| 14-Jan | % chg* | |
| Top 5 losers | ||
| Tata Motors | 1,178.60 | -4.62 |
| HDFC Bank | 2,053.00 | -4.16 |
| HDFC | 641.55 | -3.95 |
| Sterlite Ind | 176.35 | -3.45 |
| Bajaj Auto | 1,246.90 | -3.09 |
| * Over previous close; price in Rs | ||
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Market observers pointed to the government’s helplessness in controlling inflation. The Reserve Bank of India is now expected to raise rates by at least 50 basis points, they say.
N Sethuram, chief investment officer at Shinsei Investments, says, “India de-rating is happening because of various macro factors. It is not that these factors are new. Even six months ago, fiscal deficit, inflation and current account deficit were being talked about. However, now there is a gradual feeling that inflation is not being contained by normal regulatory measures. If further steps are taken to tame inflation, growth will come down, affecting corporate earnings. GDP growth could be revised down to six-seven per cent in that case.”
He said there would be further selling by FIIs. “In 2011, India will be relatively less attractive. Why should FIIs not go to other growth markets?”
Agrees Piyush Garg, chief investment officer at ICICI Securities: “The government seems to panicking over inflation. In its helpnessness, it may take actions which will not be desirable and affect growth. In fact, the economy is already showing signals of moderation in growth. With this, the choppiness in the markets is likely to continue.”