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Indian markets on Monday declined the most in a month, spooked by underwhelming corporate earnings and exit polls indicating a setback for the Bharatiya Janta Party (BJP) in the Delhi Assembly elections. Ahead of a meeting of finance ministers of the euro zone on Wednesday, political developments in Europe also weighed on the risk appetite of global investors.
Greece’s rejection of an international bailout programme saw the stock market in Athens correct five per cent, while other European markets declined more than a per cent.
Falling for the seventh consecutive day, the benchmark Sensex dropped 490 points, or 1.71 per cent, to close at 28,227.39, the lowest since January 19. The 50-share Nifty ended at 8,526.35, down 134.7 points, or 1.56 per cent, with four out of every five component ending with losses.
The Sensex, which fell the most since January 6, is now down about 1,400 points from its all-time high of 29,682 touched on January 29.
Analysts said the sharp correction was a result of weak third-quarter numbers posted by India Inc, which belied the optimism of investors. Index heavyweight Larsen & Toubro and steel major Tata Steel were the latest to disappoint the market.
"Investors were anticipating third-quarter numbers would show some turnaround. But nothing of that sort has happened. Banking and capital goods stocks, supposed to be the harbinger of good days, have disappointed the most," said UR Bhat, managing director, Dalton Capital Advisors.
Most blue-chip companies that have announced earnings so far have fallen short of expectations, say analysts. "The negative show from rural India has surprised adversely. Large companies, including Asian Paints, as well as smaller ones such as V-Guard, have suggested rural India is slowing. This is something not many investors had on their radars. This driver, which has been incredibly robust in the past, seems to be coming off," said Saurabh Mukherjea, chief executive officer (institutional equities), Ambit Capital.
Exit polls, which showed a poor show by the BJP in elections to the 70-seat Delhi Assembly, also added to investor concern. A likely defeat against the Arvind Kejriwal-led Aam Aadmi Party (AAP) would be the first major defeat for the BJP since it swept to power at the Centre during the Lok Sabha elections in May last year. Though a setback in Delhi won't have any impact on the performance of the central government, experts feel the elections would be seen as a test of Prime Minister Narendra Modi's popularity and the party's ability to strengthen its position in the Upper House of Parliament.
Market players say a victory for AAP might not lead to further correction. "AAP's victory has more or less been factored in. The market has seen a significant correction in the past few sessions. Corporate earnings and news flow on the Budget front will drive the markets," said Bhat.
Foreign investors have turned cautious, taking out money on five out of the previous six trading sessions. On Monday, foreign institutional investors net-sold shares worth Rs 660 crore, according to provisional data. The outflows weighed on the rupee, which ended at a three-week low of 62.16/dollar, against its previous close of 61.7.
Shares of Larsen & Toubro closed 6.6 per cent lower on Monday after the company reported a drop in profit and cut its order-inflow forecast. The Tata Steel and GAIL stocks fell 5.8 per cent and 4.5 per cent, respectively, after the companies missed analyst expectation. State Bank of India and ICICI Bank declined 3.65 per cent and 2.9 per cent, respectively.
