Sensex, Nifty post sharpest daily decline in two months on dismal fiscal deficit data
Mumbai: Benchmark equity indices fell 1.3% on Thursday, the sharpest daily decline in two months, mirroring losses in Asian equities triggered by a steep decline in US technology stocks.
Dismal fiscal deficit data and caution ahead of the release of September quarter economic data, which came after market hours, kept investors on the sidelines. The market was also choppy on the expiry of domestic derivative contracts.
BSE’s 30-share Sensex closed 1.35%, or 453.41 points, lower at 33,149.35 points, and the National Stock Exchange’s 50-share Nifty shed 1.3%, or 134.75 points, to close at 10,226.55 points. It was the lowest close for these indices since 16 November. It was the biggest daily decline for the Sensex and Nifty since 27 September.
India’s fiscal deficit at the end of October hit 96.1% of the budget estimate for the full year ending in March 2018. The fiscal deficit—the difference between the government’s expenditure and revenue—was Rs5.25 trillion in April-October.
“A healthy fiscal deficit gives the government more head room to use macroeconomic tools like interest rates to boost the economy, which is why the current figures have unnerved investors,” said Karthikraj Lakshmanan, senior fund manager—equities at BNP Paribas Mutual Fund.
Only two of 30 Sensex stocks closed higher. Energy-to-telecom conglomerate Reliance Industries Ltd lost 2.42%, making it the biggest contributor to the index’s decline.
Investors were also wary because they were waiting for the outcome of the Organization of Petroleum Exporting Countries (Opec) meeting in Vienna, where oil producers are expected to extend a supply cut, which have propped up oil prices this year.
Before Thursday’s decline, Indian stock market capitalization reached $2.29 trillion, overtaking Canada’s $2.27 trillion.
“Largely, derivatives expiry and caution ahead of GDP data, and that along with dismal fiscal deficit data, added to the woes of the market. Weak Asian markets had deterred sentiment,” said Rikesh Parikh, vice-president, institution corporate broking, Motilal Oswal Securities Ltd.
“Gujarat election results and US Federal Reserve’s meeting are key events to watch out for,” added Parikh.
On Friday, the markets may take consolation from the fact that Indian economic growth rebounded to 6.3% in the September quarter, an indication that the economy has shaken off the lingering effects of the note ban last year and the Goods and Services Tax (GST) rollout on 1 July. Growth had slowed to 5.7% in the June quarter, the slowest pace in three years.
Foreign institutional investors (FIIs) returned to investing in Indian equities in November and have pumped in a net of $8.86 billion so far in 2017 in the asset class. Domestic institutional investors have injected a net Rs80,979,64 crore in Indian shares so far this year.
Earlier this week, Goldman Sachs said it stays overweight on Indian equities, and expected the benchmark Nifty to rise to 11,600 points by the end of 2018 on robust corporate earnings growth.
Goldman Sachs projects real GDP growth of 8% for India in fiscal year 2019 compared with an expected 6.4% in fiscal 2018 as the negative impact of disruptive events eases and the bank recapitalization programme leads to credit and private investment growth.
Some expect the markets to be range-bound for a while.
“We might see a time correction more than a price correction,” said Vaibhav Sanghavi, co-CEO, Avendus Capital Public Markets Alternative Strategies LLP. He explained that the markets may trade in a narrow band for an extended period of time as investors wait for corporate earnings growth to bounce back and valuations to come down.
“I am not looking at a deep 10% correction unless something unexpected and unpredictable comes in,” he added.
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