Shells, fire and fury derail Sensex, Nifty
Sebi’s list of 331 suspected shell companies and US President Donald Trump’s ‘fire and fury’ comment on North Korea’s nuclear threat plunge Sensex, Nifty to almost three-week lows
Mumbai: Benchmark equity indices fell for the third session in a row on Wednesday to their lowest close in three weeks as geopolitical tensions and a regulatory crackdown on suspected shell companies unnerved investors.
European shares dropped after a man rammed a car into a group of soldiers in Paris. US and Asian markets closed in the red after North Korea said it was considering plans to attack the US Pacific territory of Guam, which has a large military base, in response to US President Donald Trump’s vow to respond to threats from Pyongyang with “fire and fury”.
BSE’s 30-share Sensex fell 216.35 points, or 0.68%, to close at 31,797.84 points, the lowest since 18 July. The National Stock Exchange’s 50-share Nifty shed 70.50 points, or 0.71%, to close at 9,908.05, the lowest since 20 July.
All BSE sectoral indices closed lower. BSE Healthcare and BSE Industrials shed the most among sectoral indices, closing 3.73% and 2.06% lower.
In the Sensex pack, Sun Pharmaceutical Industries Ltd was battered the most, plunging 5.13% to an over four-year low after its US subsidiary Taro Pharmaceutical Industries Ltd reported weak quarterly number.
The correction has interrupted a Sensex rally that has seen the index gain 19.42% so far this year, making it the third best performer in Asia.
On Monday night, the Securities and Exchange Board of India spooked investors when it directed stock exchanges to initiate action against 331 listed entities suspected of being shell companies. Some of the companies protested, pointing to their operating and dividend-paying track record.
“The Sebi circular on the 331 companies hit investor sentiment, particularly in the mid-cap space,” said Rikesh Parikh, vice-president, institution corporate broking, Motilal Oswal Securities Ltd.
“The last leg of results season is showing some amount of disappointment. The North Korea tensions are also weighing on investor sentiment globally,” he added.
“The tensions surrounding North Korea are making investors cautious,” said Ritesh Jain, chief investment officer, BNP Paribas Mutual Fund.
“Sebi issue leads to cascading uncertainty among investors as they fear if more such steps are in the offing. Bad news for pharma companies in terms of development at Teva hurt investor sentiment,” said Jain.
On 3 August, Teva Pharmaceutical Industries Ltd said it was facing accelerating price erosion in the US. The world’s largest generics drugmaker posted a larger-than-expected drop in its June quarter earnings. It also slashed its dividend by 75% and cut its 2017 forecast.
“The rally (in the Indian market) was uninterrupted, and a correction was overdue and these incidents triggered it. While mid–caps may take time to recover, given that mutual funds are flush with liquidity, the front-line stocks will probably recover faster,” said Parikh.
BNP’s Jain said it was difficult to predict if the correction was over. “It is difficult to understand if the pain is over or there is more in the offing,” said Jain.
Reuters contributed to this story.