The slowdown in inflation and hastening of government's efforts to pass key bills and resolve tax issues failed to cheer investors' sentiments, which were impacted by poor quarterly results, the slide in rupee value and international market volatility.
The benchmark 30-scrip Sensitive Index (Sensex) of the S&P Bombay Stock Exchange (BSE) closed the weekly trade ended May 15 on a flat note and gained only 0.80 percent or 218.61 points during the session.
The Sensex had ended the trade session at 27,324 points. For the previous weekly trade ended May 8, the BSE Sensex had closed at 27,105.39 points.
The S&P BSE Sensex had gained 94 points or 0.34 percent during the weekly trade ended May 8 and stood at 27,105.39 points, against the (April 30) close 27,011.31 points.
The Indian equities markets faced contradicting cues which on one hand led to out-flow of foreign funds due to minimum alternate tax (MAT) issue, higher bond yields in the US and Europe and the anxiety over Greece's ability to pay its dues.
On the positive side, both retail and wholesale price data came in better-than-expected giving hopes of a policy rate cut by the Reserve Bank of India (RBI) in its next monetary review scheduled for June 2.
The markets also became cheaper to invest in as correction led to the stocks coming close to their long-term returns averages.
"The markets were dampened mainly due to poor quarterly results of some of the major companies. Private capital expenditure and growth outlook is very important for a growing market like India," Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.
"The valuations after corrections have become cheaper. The stocks are closer to their long-term returns averages. The dying-down of euphoria about the new government's reforms agenda has also played a part in it," Nevgi further said.
According to Nevgi, the tactical rotation of funds from India to other emerging markets like China and commodity futures also played a role in funds out-flow from the Indian equities space.
"There was also tactical movement of investments which pulled-out funds from India into China, South Africa, Russia and the commodities markets," Nevgi added.
Dipen Shah, head of private client group research with Kotak Securities told IANS that the single biggest factor which impacted the markets this week was the slide in the rupee value.
"The rupee's position is a key factor that decides our ability to import oil and other commodities. On the other hand it helps our exports. Thus the balance in rupee value is key for the continued growth in the country,"
On Tuesday the Indian rupee's vale further weakened against the dollar by around 17 paise and stood at Rs.64.17 per dollar. The rupee value currently stood at Rs.63.43 per dollar.
Heavy selling by foreign investors on the back of the MAT dispute let to the free-fall in rupee value.
The MAT on capital gains is expected to impact the margins of foreign funds. This has hit their investment appetite for the Indian equities market.
According to data with the National Securities Depository Limited (NSDL), the Foreign Portfolio Investors (FPIs) had turned into net sellers in the Indian equities markets. They off-loaded shares worth Rs.1,854.25 crore or $289.02 million for the week ended May 15.
For the previous trading week ended May 8, FPIs sold stocks worth Rs.6,553.44 crore or $1.02 billion in the equities market.
The domestic retail investors also did not take advantage of lower valuations and stayed on the sidelines, according to Alex Mathews, head-research, Geojit BNP Paribas Financial Services.
"The domestic institutional investors are supporting the market. However, their participation and support is not able to fill-in the difference caused by FIIs (foreign institutional investors) out-flows," Nair said.
"Many domestic investors are also waiting for the government to off-load stake in Indian Oil and NTPC."
(Rohit Vaid can be contacted at rohit.v@ians.in)
