Indian stocks are likely to come under pressure on Monday after both the US and the European markets ended with sharp losses on Friday, on disappointing US jobs data and concerns that the euro-zone debt crisis was spreading across the region after Hungary said its economy is in a grave situation.
On Friday, major US stock indices fell more than 3 per cent after a government report showed that employers added fewer-than-expected jobs in May. The Dow Jones Industrial Average tumbled 323.31 points, or 3.2 per cent , to 9931.97, its lowest close since February 8. The Nasdaq Composite fell 3.6 per cent, while the S&P 500 lost 3.4 per cent.
Major European markets also ended lower on Friday after Peter Szijjarto, a spokesperson for Hungarian Prime Minister Viktor Orban, said it was no exaggeration to talk about a default. The UK’s FTSE 100 fell 1.6 per cent, Germany’s DAX declined 1.9 per cent and France’s CAC 40 tumbled 2.9 per cent.
“Indian markets will see some knee-jerk reaction on Monday because of global concerns,” said Manish Sonthalia, fund manager of portfolio management services at brokerage Motilal Oswal. The Bombay Stock Exchange (BSE) benchmark Sensex closed up 95.36 points, or 0.56 per cent, at 17,117.69 on Friday.
Public sector undertaking (PSU) stocks, which have a low float, should see some selling after the government made 25 per cent public holding mandatory for all listed companies, Sonthalia said. On the other hand, shares of Indian units of multinational companies (MNCs) may go up, on expectations that they would opt for de-listing after the new norms, he added.
Saurabh Nanavati, chief executive officer at Religare Mutual Fund, is of the view that investors should not get worried regarding the larger float absorption in PSU companies. For, given the quality of these companies, index weightages will re-adjust and increase the PSU stock weightages in the Sensex, Nifty and other indices. “This, in turn, will force foreign institutional investors, portfolio managers and exchange-traded funds to shift their holdings to these PSU companies from private sector companies,” he added.
Many foreign investors follow passive investment strategy and track the performance of an index like Sensex, Nifty or MSCI India. The weightage of a particular company’s stock in these indices depends on its free float.