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The equity benchmarks declined for the fourth consecutive week — the worst straight weekly fall since May 2022 — amid concerns about rate hikes and China’s ailing economy.
The Sensex on Friday ended the session at 64,948, a drop of 202 points or 0.3 per cent.
The Nifty 50 declined 55 points to end the session at 19,310, a 0.3 per cent fall. Both the indices declined by 0.6 per cent for the week and have come off nearly 4 per cent from their record highs a month ago.
The problems in China’s real estate sector and shadow banking stoked contagion fears.
On Thursday, Zhongzhi Enterprises, a company that reportedly manages assets worth 1 trillion yuan, said it needs to restructure its debt.
News reports suggested that Zhongzhi has high exposure to China’s real estate sector and stopped paying its investors.
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“The shadow banking crisis in China has led to uncertainty. If the Chinese economy is troubled, the demand for oil and raw materials will come down and have repercussions for global economic recovery. Moreover, there has been no announcement on a revival package in China,” said UR Bhat, co-founder of Alphaniti Fintech.
Markets globally have been listless since the minutes of the Federal Reserve’s last monetary policy meeting suggested that its officials are considering a tighter policy to tame inflation.
This is dashing investors’ hopes that rate hikes have peaked.
In the future, analysts said the Indian markets will likely see a period of consolidation as rich valuations across sectors will potentially cap the upside.
Meanwhile, a reasonable macroeconomic position, improving profitability and volumes in the consumption sectors are expected to protect the downside.
“We see sufficient positives and potential negatives for the Indian market, which may offset each other over the next few months, leading to a period of consolidation for the Indian market,” said a note by Kotak Institutional Equities this week.
The brokerage further suggested investors exercise caution and said risks could emerge from unknown quarters.
The current valuations of the Indian market largely price in most short-term and medium-term positives but do not factor in any short-term risks (unknown) and medium-term challenges of lower profitability and likely lower multiples across major consumption sectors and stocks. In other words, there is no margin of safety in the current valuations, and any major adverse event could lead to a large and swift correction in stock prices given the inflated multiples,” the note said.
Foreign portfolio investors (FPI) were net sellers to the tune of Rs 267 core, while domestic institutional investors (DIIs) were net buyers at Rs 339 crore. So far in August, FPIs have been buyers at Rs 9,119 crore.
More than two-thirds of Sensex stocks declined. IT stocks pulled the indices, with Infosys and TCS contributing the most to Sensex losses.
Adani Group stocks rose after news reports that Abu Dhabi's TAQA is mulling a huge investment in the company.
However, the company clarified that it is not engaged in talks.
IT stocks fell the most, and its gauge on BSE declined 1.5 per cent, weighed down by uncertain growth outlook.
The market breadth was weak, with 2,132 stocks declining and 1,484 stocks advancing on the BSE.
Next week, investors will be tracking the gathering of policymakers at Jackson Hole for further cues.
“Though we see resilience in select pockets, we feel it is prudent also to book some profits off the table and maintain a few shorts.
On the index front, Nifty would face the first hurdle around 20 exponential moving average (EMA), which currently lies at the 19,500 levels. And, we are eyeing 19,100 as the next crucial support,” said Ajit Mishra, senior vice-president, Religare Broking.
