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Business News/ Market / Stock-market-news/  Markets lose steam, Sensex slips below 28,000
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Markets lose steam, Sensex slips below 28,000

Expectation of weak earnings, tax woes of foreign investors and uncertainty over land bill weigh on sentiment

Photo: MintPremium
Photo: Mint

Mumbai: Benchmark stock indices plummeted on Monday, the fourth consecutive losing session, to their lowest close in three weeks as investors fretted about corporate earnings, the tax woes of foreign funds and uncertainly over the land bill being passed by Parliament.

The Sensex, the 30-share benchmark of the BSE, fell 1.95%, or 555.89 points, to 27,886.21 points at the close of trading. Market breadth was negative, with more than two shares declining for every share that advanced on the BSE. The index has shed 1,158.23 points in four sessions. Monday’s fall wiped 1.59 trillion off the market capitalization of BSE-listed firms.

The National Stock Exchange’s 50-share Nifty tumbled 1.83%, or 157.90 points, to 8,448.10 points.

It was the lowest close since 27 March for both the indices. The near-term outlook for the markets looks choppy, and more declines cannot be ruled out, say market participants.

Expectations of weak corporate earnings, a 37% increase in Brent crude prices since 13 January to date, tax notices slapped on foreign institutional investors (FIIs) demanding that they pay minimum alternate tax (MAT) and stiff resistance by opposition parties to the land bill have unnerved investors, according to market participants.

MAT is a tax paid by profit-making companies that do not pay corporate tax on account of incentives and exemptions.

“It’s a combination of the MAT issue and concerns if key bills such as land acquisition bill can pass through the Parliament session," said independent market analyst Ambareesh Baliga.

“Moreover, May is approaching—and it is generally a weak month, barring last year. Modi’s one-year report card is also due, and a lot of questions will be asked pertaining to his promises and extent of deliveries," added Baliga.

Baliga said expectations of weak corporate earnings and the firming of oil prices were also weighing on investor sentiment.

Finance minister Arun Jaitley said the government will press ahead with 40,000 crore of tax demands on FIIs for capital gains made during previous years, according to a report on NDTV news channel.

“...We believe that the stage is set for a long legal battle ahead. Clearly, India is not completely out of the ‘tax claims pertaining to prior years’ syndrome yet," CLSA analysts Mahesh Nandurkar, Abhinav Sinha and Alok Srivastava said in a note on Sunday.

Provisional data from NSE showed that FIIs sold net of 1,506.86 crore of Indian equities on Monday, while domestic institutional investors (DIIs) were net buyers of 962.50 crore of local shares.

FIIs are still net buyers of Indian shares to the tune of $6.3 billion since the start of the year to 17 April, data from the Securities and Exchange Board of India showed.

Some analysts have started cutting their targets for benchmark indices, citing concerns about weak corporate earnings growth as domestically oriented companies struggle with weak demand and exporters are hit by unfavourable currency movements.

In separate notes earlier this month, Edelweiss Financial Services Ltd estimated that net profit and sales of the 30 companies that constitute the BSE Sensex will decline by an average of around 7% from a year earlier and Kotak Institutional Equities said it expects profit to rise by an anaemic 0.1% and sales to grow by 0.2%.

UBS Securities India Pvt. Ltd, the Indian arm of UBS AG, cut its Nifty target for December 2015 to 9,200 points on Monday, from 9,600 earlier, to reflect earnings estimate cuts.

“The revised target also reflects our view of the growth recovery being slower than expected, as is playing out in quarterly corporate results. It does reflect possibility of near-term consolidation and even profit-taking, given limited absolute upside from current levels near-term," said Gautam Chhaochharia, head of India research at UBS.

“We remain positive directionally and expect the rates cycle to continue, surprising the markets positively. India remains overweight from Asia and EM (emerging markets) perspective," Chhaochharia added.

Among key corporate earnings announced so far, Tata Consultancy Services Ltd (TCS), the country’s largest software services company, missed analysts’ revenue estimates for the third straight quarter in the three months ended 31 March due to unfavourable currency fluctuations and weaker demand for software services from clients in the US and the UK.

TCS reported fourth-quarter revenue rose 12.4% from a year ago to 24,220 crore. It declined 1.1% from the preceding three months. Shares of TCS have lost 8.3% in the last four sessions.

Cement maker ACC Ltd reported a 41% drop in net profit for the quarter ended 31 March due to weak demand and a tax expense of 78 crore. Sales dropped 3% to 2,885.44 crore.

Reliance Industries Ltd (RIL) bucked the trend and on Friday posted its highest quarterly profit in seven years as record earnings from its mainstay refinery operations countered weak petrochemical margins and lower income from its exploration and production business.

RIL’s stand-alone net profit rose 10.9% to 6,243 crore in the March quarter. RIL’s shares, however, dipped 4.5% on Monday, making it the top loser among Sensex stocks.

In Monday’s trading, only two of Sensex’s 30 components—ICICI Bank Ltd and Sun Pharmaceutical Industries Ltd—managed to close in the green

All the sectoral indices closed lower on Monday. The BSE Realty Index was the top loser with a 2.8% decline, followed by the BSE Fast Moving Consumer Goods Index which shed 2.7%, and BSE Capital Goods Index which shed 2.2%.

The outlook from here on looks hazy.

“Other global events and domestic issues (tax notices to FIIs for past income) could also affect sentiment. We see potential correction in the high-growth quality stocks if investors start questioning the Street’s earnings assumptions. Even with a 15-20% correction, valuations would remain heady," Kotak analysts Sanjeev Prasad, Akhilesh Tilotia and Sunita Baldawa wrote in a note on Monday.

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Published: 21 Apr 2015, 12:32 AM IST
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