Mumbai: Key equity indices fell on Monday, losing close to 6% in three successive sessions, amid weak European markets after data showed that October factory output declined for the first time in more than two years even as the rupee ended at a record low against the US dollar.
Industrial production shrank 5.1% in October, well below the consensus of economists’ estimates, after expanding 2% in September.
The BSE’s benchmark Sensex lost 343.11 points, or 2.12%, to close at 5,870.35. In the past three sessions, the index has shed 1,006 points. The broader Nifty index of the National Stock Exchange (NSE) ended the day at 4,764.6 points, down 2.1%.
The rupee closed at a new low of 52.789 a dollar, after dropping to an intra-day low of 52.84, as foreign institutional investors (FIIs) rushed to sell stocks following weak industrial production data. According to the provisional data from NSE, FIIs sold Rs 428.3 crore of Indian shares net of buying.
On Friday, the local currency closed at 52.03 to a dollar.
“The data points and the loss of the rupee partly reflect the loss in investor confidence in the country,” said Rupa Rege Nitsure, chief economist at Bank of Baroda.“Rather than stimulating investment demand, we tried to fight the slowdown by stimulating consumption. This has resulted in negative investor sentiment.”
According to currency dealers, the Reserve Bank of India (RBI) tried to arrest the fall in the rupee by selling dollars in the market throughout the day. However, the demand for the greenback was too high, pulling down the local currency to a lifetime low. Traders expect some immediate pull-back before the rupee continues its slide against the dollar.
“Speculation in offshore and onshore currency markets could have also played a part in rupee’s depreciation,” Nitsure said.
The rupee is the worst-performing currency among major Asian peers against the dollar this calendar year, falling more than 15%.
India’s key equity indices, down at least 22% each, are among the worst-performing in the Asia-Pacific region.
Since January, FIIs have sold Indian stocks worth $148 million net of buying after pumping in a record $28.6 billion last year.
Last week, the government lowered its economic growth target for the fiscal year and admitted to overstating exports by $9 billion, raising fears of a wide trade deficit and hurting hopes of a year-end rally. “Nine out of last 10 years, we have seen a year-end rally and this year could be an exception. Valuation-wise stocks are attractive, but the question is whether they will be more attractive in the days to come,” said Ambareesh Baliga, chief operating officer at brokerage Way2Wealth. “Although expectations were watered down, the (factory output) numbers were really bad and it broke the sentiment.”
With the Nifty closing below the 4,800 level, market participants are closely watching the 4,700 level, from where the index has bounced back many times. “We could see a fall tomorrow as well, and at best we may see a bounce back later. But if the 4,700-4,650 levels are broken decisively, then the Nifty could see 4,200 levels,” said Baliga.
As the poor factory output numbers fuelled fears of an economic slowdown, shares of metal companies fell the most. The BSE metal index (down 4.14%) was the biggest loser among sectoral indices, followed by BSE bankex (down 2.98%), BSE oil and gas (down 2.80%) and the BSE PSU index (down 2.78%).
The biggest losers among the Sensex members were Tata Power Co. Ltd (down 6.46%), Hindalco Industries Ltd (6.37%), Jindal Steel and Power Ltd (5.14%) and State Bank of India (4.87%).
While the underlying sentiment remains weak, indicators such as inflation data and RBI policy are expected to set the near-term outlook. “We may see some more selling (on Tuesday). But a minor bounce-back is expected from Wednesday as headline inflation, which will come out on Wednesday, is expected to ease further and RBI is meeting on 16 December to review the interest rate situation. For Nifty, support is there at 4,710 and 4,655, and resistance is at 4,864 and 4,964 levels,” said Alex Mathews, head of research, Geojit BNP Paribas Financial Services Ltd.
“Indonesia, Thailand, the Philippines and Malaysia have been the best-performing emerging markets in 2011; may make sense to shift money from those into China, India once they start cutting rates,” Bloomberg reported on Saturday, citing CLSA’s strategist for the Asia-Pacific region, Christopher Wood, from a Barron’s interview.
In Monday’s trade, 57 stocks hit new lows on BSE. As of Monday, out of 8,457 listed companies, 5,797 were trading below their 52-week lows.