New Delhi: Indian stocks on Friday dropped to a 19-month low and recorded their fifth straight weekly decline—the longest losing streak in at least three years—as investors grew nervous ahead of a speech by US Federal Reserve (Fed) chairman Ben Bernanke in which they expected some indication of the future course of action.
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The fall also happened a day after the Reserve Bank of India (RBI) said it will fight inflation even at the cost of growth. Most analysts said the market is nearing its bottom, but recovery may take longer than most are expecting.
In the event, Bernanke stopped short of signalling further action to boost the US recovery, but said it was critical for the economy’s health to reduce unemployment, Reuters reported.
Bernanke said the central bank had marked down its outlook for US economic growth and made clear that the policy focus was still on spurring a stronger recovery, but he did not provide any fresh details on steps the Fed could take.
“It is clear the recovery from the crisis has been much less robust than we had hoped,” he said.
Bernanke’s speech at a central banking conference appeared to disappoint some market participants who had hoped the Fed chairman would make a clear case for a further easing of monetary policy.
Bernanke had signalled the second round of quantitative easing at his Jackson Hole speech last year.
Reports of China moving advanced nuclear missiles to the Sino-Indian border and the stand-off between the Indian government and anti-corruption campaigner Anna Hazare also weighed on investor sentiment.
The bellwether 30-share index of BSE, the Sensex, closed below the psychologically important 16,000 mark. It fell 297.50 points, or 1.84%, to close at 15,848.83.
The broad-based 50-share Nifty of the National Stock Exchange closed below 4,800. The index lost 91.80 points, or 1.9%, to end the day at 4,747.80.
“All negative factors are driving the markets down. There are negative global cues and rate hike fears in India,” said Moses Harding, an executive vice-president and head of global markets at IndusInd Bank Ltd.
Foreign institutional investors (FIIs), the key drivers of domestic markets, sold Indian equities worth a net Rs 226.20 crore, while domestic institutional investors bought shares worth a net Rs 392.90 crore.
Foreign funds have been net sellers of more than $2 billion (Rs 9,220 crore today) of local shares this month after buying a net $1.7 billion of equities in July.
Most Asia-Pacific and European indices dropped, while gold rose 0.72% to $1,787 per ounce (28.35g) on the London Stock Exchange’s FTSE.
“This is one last ray of hope that the world has,” Jagannadham Thunuguntla, head of research at SMC Global Securities Ltd, said before Bernanke’s speech, and referring to another round of quantitative easing. “It is not a textbook-like double-dip recession in the US.”
According to him, it may take much longer for economies to recover than estimated. “The dollar-yen-euro equation is misaligned. Global trade can’t happen in such a scenario,” he said.
The “Fed has already indicated that it will pursue its near-zero rate policy at least till mid-2013. It has also hinted at another dose of quantitative easing. This policy stance may keep commodity prices elevated”, RBI had said on Thursday.
The central bank said India’s growth is likely to decelerate in the current year to close to the projected 8%, but warned there could a “downward bias” if global uncertainties worsen.
With Friday’s drop, the Sensex and the Nifty have fallen close to 23% since January and are the biggest losers among Asia-Pacific indices. From a November high, they have lost more than one-fourth, wiping out investor wealth of Rs 47.18 trillion.
The markets have factored in all negatives until now and the downside may be limited from current levels, according to Harding of IndusInd Bank.
In the year so far, FIIs have bought Indian shares worth a net $178.2 million, while domestic institutions have bought equity worth a net Rs 22,817.22 crore.
“I would be surprised to see extended weakness below 4,600 (Nifty),” said Harding. “Between 4,600 and 4,900 is a good level to buy with a 6-12 month horizon. We see Nifty back at 5,700 levels by the end of March next year or the first quarter of next fiscal.”
Among Sensex stocks, Jaiprakash Associates Ltd was the biggest loser on Friday, down 7.58% to Rs 54.90. Index heavyweight Coal India Ltd (CIL) fell 3.9% to Rs 359.75. Tata Steel Ltd dropped 4.77% to Rs 422.25.
Shares of Reliance Industries Ltd (RIL) fell sharply in the last hours of trade in a broader market sell-off to close 4.61% lower at Rs 719.40, its lowest close since late March 2009.
At Friday’s close, state-run oil explorer Oil and Natural Gas Corp. Ltd toppled RIL to become India’s most valuable firm in terms of market capitalization, with a market cap of Rs 2.38 trillion against the latter’s Rs 2.36 trillion.
Last week, CIL had pushed RIL off its four-year-old perch to claim the top spot, before the firm reclaimed it.
Graphic by Sandeep Bhatnagar/Mint
Reuters contributed to this story.