Mumbai: Indian stocks fell for the seventh session on Wednesday, logging their biggest losing streak since December, on mounting concerns over expensive valuations and economic growth. With an earnings recovery still not in sight, the pain in the markets may continue for a while, said analysts.

BSE’s 30-share Sensex closed 439.95 points, or 1.39%, lower at 31,159.81 points, its lowest close since 30 June. The National Stock Exchange’s 50-share Nifty shed 135.75 points, or 1.38%, to close at 9,735.75 points, its lowest close since 11 August.

The fall accelerated towards the close of trading hours after the Indian Army announced on Twitter that it fired at insurgents along the India-Myanmar border in the early hours of the morning.

“All the three markets—bonds, rupee and equities—are seeing a correction simultaneously. This hints there could be more pain in the offing," said Ritesh Jain, chief investment officer at BNP Paribas Mutual Fund.

India’s 10-year bond has seen its yield rising by 25 basis points to 6.667% since 24 July, while the rupee closed at 65.71 against the US dollar, down 0.4% from its previous close and at a fresh six-month low. Bond yields move inversely to prices.

Rising oil prices have also added to the jitters. Brent crude traded at $58.25 per barrel on Wednesday, hovering near 22-month highs amid an unexpected drop in US crude inventories and coordinated output cuts by key oil producers.

“There has been a spike in oil prices and among G20 countries, India gets hit the most on this count," said Jain.

A spike in the import bill doesn’t augur well when economic growth has faltered and the current account deficit has increased. On Wednesday, India Ratings and Research joined a bunch of economists and multilateral organizations in slashing growth estimates. The rating company has cut gross domestic product growth projection for the current fiscal to 6.7% from an earlier 7.4%, citing the withdrawal of currency notes and introduction of goods and services tax (GST).

“Pertinent issues of employment generation and private sector capex cycle are unlikely to be addressed simply by any broad-based ‘stimulus’ and need long-term focused ‘targeted’ expenditure spends," Kotak Securities economists wrote in a 25 September note.

This has led to continued pessimism on earnings as well.

“The market may correct more, given the fact that the dollar is strengthening, and Fed is unwinding its balance sheet and has a hawkish stance too," said Vaibhav Sanghavi, co-CEO, Avendus Capital Public Markets Alternative Strategies Llp. “On the domestic front, GST cycle has temporarily spiked up working capital requirements, which needs to be resolved."

This grim prognosis has made investors question the expensive valuations of stocks.

The Sensex is trading at 17.88 times its one-year ahead earnings, which is an 18% premium to its five-year historical average. In comparison, MSCI EM index and MSCI Asia ex-Japan index trade at 12.4 times and 12.95 times, respectively.

With growth not quite supporting valuations, and the US Federal Reserve planning to shrink its balance sheet—which squeezes the supply of easy money—foreign investors have been more circumspect in recent times. They have pulled out $2.5 billion from Indian stocks since 1 August and are net sellers this fiscal.

Since the Sensex’s peak seen on 2 August, it has shed 4.67%, while BSE mid-cap and BSE small-cap indices have shed 1.93% and 2.09%, respectively.

Inflows from domestic institutional investors have supported the Indian markets as they have pumped in a net of Rs52,439.95 crore so far in this fiscal year. However, a lack of good opportunities is prompting fund managers to keep aside as much as 6% of assets under management in cash, the highest level in six months, showed August data from mutual fund tracker Morningstar.

Close