Mumbai: Key Indian indices continued their six-day-long losing streak in a highly volatile session on Tuesday but emerged as one of the most resilient among major world indices, beating 15 of its peers. The meltdown started last week after the European debt crisis resurfaced and intensified following the US credit rating downgrade.
The Bombay Stock Exchange’s bellwether equity index, the Sensex, swung 703 points intraday, the highest trading range seen in 25 months, and closed at 16,857.90 points, down 132.27 points or 0.78%. The broad-based 50-stock Nifty of the National Stock Exchange (NSE) closed at 5072.85 points, down 45.65 points of 0.89%. Volatility was the theme of the day with NSE’s India volatility index or VIX, a gauge of risk and fear, climbing 21.20% to close at 34.88. Even as fiscal uncertainties in the US and Europe push equity indices into bear territory, India’s key indices have managed to restrict their losses, as hopes of abating inflation and an end to the interest-rate tightening cycle saw buying support from domestic institutional investors, including insurance companies and mutual funds.
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The Dow Jones industrial average of the US gained 230.53 points, or 2.13%, at 11,040.38 in Tuesday morning trade.
The Sensex has lost 7.95% since the slide that began last Tuesday. At least 10 markets have lost between 10% and 17% in this period with Korea’s Kospi leading the pack (down 17.08%), followed by Brazil’s Bovespa (down 16.86%). The NSE Nifty has lost 8.05%.
According to market experts, though the domestic currency may harden in case of a pronounced slowdown in developed economies, the resultant decline in commodity prices will help Indian companies operate profitably. The rupee depreciated 0.52% to close at 45.2113 against the dollar on Tuesday. The Indian currency has lost 2.51% against the greenback this month.
“The US spending cut has been the worry. But even if demand slows and rupee hardens, commodity prices will decline. My sense is that it will be positive for India,” said Puneet Chaddha, chief executive officer, HSBC Asset Management (India) Pvt. Ltd.
Indian stocks opened Tuesday on a jittery note after the Dow Jones Industrial Average fell 5.55% Monday to close below the psychologically important 11,000-mark, prompting US president Barack Obama to address the nation.
Though hopes of lower inflation and higher corporate margins have prompted buying of Indian stocks at lower levels, the domestic markets have remained among the biggest losers in the calendar year so far.
“We have outperformed others in a month or so, but we underperformed in a year’s period,” said Rajiv Anand, managing director and CEO, Axis Asset Management Co. Ltd, that has Rs 7453 crore worth of assets under management.
The Sensex and the Nifty are the worst losers among emerging markets this year, both down at least 17%. “From a valuation perspective, we are expected to trade at 11-12 times the forward earnings for fiscal 2013, revised from an earlier estimate of 13-14 times. But from a long-term perspective, there is no doubt about risk-reward returns from Indian equities,” Anand said.
According to Morgan Stanley, Indian stocks have outperformed other emerging markets in a four-week period and hence are rated “underweight.” However, from a fundamental point of view, the investment bank is bullish on India.
Yogesh Kalwani, head of investment advisory, BNP Paribas Wealth Management, said on Monday, “We are factoring in a 3% decline in Sensex EPS (earnings per share) estimates. If there is no rate hike in the forthcoming monetary policy, markets will take it positively.”
A 9 August Morgan Stanley report said Indian earnings will remain resilient in the context of a significant slowdown in global growth.
“Indian earnings significantly outperformed the world and emerging markets in 2008. Yet, Indian markets were among the worst-performing markets in 2008. The reason was the freeze in global capital markets and the massive (over $20 billion) outflows from India in a single quarter (December-2008),” the investment bank said. Foreign institutional investors of FIIs sold Indian stocks worth Rs 2,104.6 crore on Tuesday, while domestic institutional investors were net buyers at Rs 1412.96 crore.
FIIs bought $1.40 billion worth of Indian stocks net of sales till Monday, according to Securities and Exchange Board of India data. In 2010, FIIs pumped a record $29.32 billion into Indian equities
India has been reeling under inflationary pressures for sometime now and the country’s central bank has raised interest rates 11 times since March 2010 to rein in prices. Crude, a dollar-denominated commodity that forms the chunk of India’s export bill, had been on an upward run, widening the country’s defecits. “Can India fund its high current account deficit if risk aversion dries up capital flows? Yes, because risk aversion will also likely reduce the current account deficit by pulling down oil prices and the oil import bill. $10/barrel swings $8 billion on the current account deficit,” a Bank of America Merrill Lynch report said.
With worries of a double-dip US recession starting to grow louder, crude has cooled off from its April high of $124.9 per barrel to $104.9 per barrel as of Tuesday, a decline of 16%. Similarly, the prices of most industrial metals have gone down as in the case of most asset classes, with money moving to gold. Continuing its rally, gold was up 1.5% at $1,745 per ounce on the FTSE on Tuesday as global stocks and commodities continued to tumble. Though India’s economy may remain relatively insulated from a global slowdown, not everyone is not convinced about returns from equity investments. “Over the next three years, Sensex returns could disappoint, with a compound annual outcome of 8.3%,” the Morgan Stanley report said.
Graphic by Ahmed Raza Khan/Mint
Ashwin Ramarathinam contributed to this story