Risk aversion to continue on euro zone debt crisis, weak US economy.
Indian shares may come under further selling pressure next week, as fears of a Greek default and gloomy outlook for the US economy continue to weigh on investor sentiment.
Volatility is expected to rise as traders roll over positions on expiry of September derivatives contracts on Thursday. Investors will also closely monitor the rupee, which last week slumped to its lowest level against the dollar in more than 28 months. The currency ended at Rs 49.43 a dollar on Friday, after hitting a low of 49.89 during the day’s trade.
India’s key stock market indices – Sensex and Nifty — lost around 4.5 per cent each last week, tracking a global stock market rout, as investors across the world shunned risk and moved towards safer assets.
“There are no signs that the market has bottomed out yet,” said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services. “In the short term, it will depend on how global developments impact flows from foreign institutional investors (FIIs).”
FIIs sold Indian shares worth Rs 2,585 crore in the last two trading sessions, provisional data on the Bombay Stock Exchange (BSE) website showed, after the US Federal Reserve gave a bleak outlook for the US economy and the euro zone debt crisis escalated with talks of a possible Greek default gaining pace.
Indian equity funds saw outflows for the 20th time in the past 21 weeks during the week ended September 21, according to EPFR Global, which tracks fund flows into world markets.
Overseas investors, with purchases to the tune of Rs 1,564 crore, were still net buyers of Indian shares in this year so far, Securities and Exchange Board of India (Sebi) data showed.
“The problems in the euro zone are not going to get solved soon,” said V K Sharma, business head (private broking and wealth management), HDFC Securities. “Investors should not be in a hurry to buy. They should preserve cash and wait for better opportunities,” he added.
Technical analysts expect Sensex and Nifty to target their August 26 lows of 15,765 and 4,720, respectively, in the coming days.
“In the short term, the breach below 4,900 has clearly put the bears in the driver’s seat. The down-move concocted with an intense momentum only points to more severe pain for the market in the days ahead,” said Sadanand Raje, technical analyst at Pioneer Investcorp (PINC). “Bearish sentiment should prevail over the next few weeks which can result in Nifty slipping its way till 4,700 or lower.”
On the global front, investors will monitor housing and consumer confidence data in the US next week. In the euro zone, Greece’s talks with the International Monetary Fund and European authorities to secure a new ¤8-billion instalment of its rescue package to avoid bankruptcy in October will also be keenly watched.
