Mumbai: Indian stocks closed lower for the fifth session in a row on Monday as investors took money off the table because of concerns over high valuations and weakening macroeconomic fundamentals at a time of diminishing global risk appetite.

Both the BSE’s 30-share Sensex and the National Stock Exchange’s 50-share Nifty closed at their lowest levels in a month. The Sensex lost 295.81 points, or 0.93%, to close at 31,626.63 points, after falling as much as 447.88 points earlier in the day. The Nifty shed 91.80 points, or 0.92%, to 9,872.60 points.

“India’s macros have weakened and if earnings disappoint, markets may stay under pressure. Earnings growth support is needed for foreign investors to take a more positive view on India," said Sanjeev Prasad, managing director and co-head of Kotak Institutional Equities.

Economic growth decelerated to a three-year low of 5.7% in the June quarter while current account deficit in the quarter hit a four-year high at 2.4% of GDP.

At the same time, geopolitical tensions over the US-North Korea stand-off and the decision by the US Federal Reserve to shrink its balance sheet starting next month have lowered investor appetite for stocks.

On Monday, Asian markets such as South Korea and Hong Kong trended lower. European shares were mixed.

Indian stocks took a bigger hammering also because they are more expensive compared with peers.

The Sensex is trading at 18.18 times one-year forward earnings, compared with five-year and 10-year historical averages of 15.24 times and 14.98 times, respectively.

“Fundamentally, the Indian market is still very expensive. The long-term story is intact, but in the near term pain may continue. We don’t see any earnings growth recovery happening in the near term, and definitely not for next 2-3 quarters," said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.

An earnings recovery is likely to be delayed as companies struggled with cash flows because of glitches in the 1 July implementation of the goods and services tax (GST), triggering a surge in working capital requirements. GST was preceded by destocking and liquidation of inventory by distributors and retailers.

Since April, consensus analyst estimates for Sensex earnings for the current financial year have been slashed by 9.7%; for fiscal 2019, they have come down by 5%.

That, along with global disturbances, has been reason enough for foreign institutional investors (FIIs) to shun Indian shares. For the fiscal year to date, they have been net sellers of nearly $300 million in Indian equities, while domestic institutional investors bought a net of Rs49,371.7 crore. That has also been a big factor in the rupee plunging to a six-month low of 65.12 to a dollar on Monday, a level last seen on 24 March, down 0.50% from its Friday’s close of 64.80.

“With stretched valuations and delayed earnings recovery, I believe FIIs would think, ‘why don’t I take some profits home?’" said Andrew Holland, CEO at Avendus Capital Alternate Strategies Llp.

Some expect the consolidation to continue.

“The longer term concerns which we had six months ago still hold good. Investors should moderate their forward return expectations as valuations have spiked a lot," said Vetri Subramaniam, group president and head of equities at UTI Asset Management Co. Ltd.

Alekh Archana and Nasrin Sultana contributed to this story.

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