Sensex, Nifty cut losses after note ban, Trump turmoil
Sensex closed lower by 338.61 points, or 1.23%, at 27,252.53; Nifty down 111.55 points, or 1.31%, at 8,432.00
Mumbai: India’s benchmark equity indices erased most of their intra-day losses but closed lower on Wednesday as Republican candidate Donald Trump’s unexpected triumph in the US presidential race jolted markets from New York to Tokyo.
Investors were also spooked by the government’s decision, announced on Tuesday night, that Rs500 and Rs1,000 bank notes would no longer be legal tender—part of a crackdown on black money and fake currency.
The BSE’s 30-share Sensex closed 1.23%, or 338.61 points, lower at 27,252.53, while the National Stock Exchange’s 50-share Nifty lost 1.31%, or 111.55 points, to 8,432 points.
In intra-day trading, the Sensex tumbled as much as 6.12%, or 1,688.69 points, to 25,902.45, while the Nifty fell as much as 6.34%, or 541.30 points, to a low of 8,002.25.
Most markets across Europe, Asia and America traded lower as investors fled.
“The election outcome creates uncertainty rather than clarity. Result is unfavourable for sentiment and risky asset markets in the very short term. Investors are likely to seek refuge in safe-haven assets,” said John Woods, chief investment officer, Asia-Pacific, Credit Suisse.
“US economy remains on a steady path, with some fiscal expansion in prospect, but immediate uncertainty curbs Fed hike prospects,” Woods said in a conference call from Hong Kong.
Woods said Credit Suisse sees emerging market (EM) equities as being more vulnerable to the trade risks of a Trump victory; it cut the rating on EM equities to neutral from outperform. “Within EM, we remain outperform on Asian equities. Within Asia, we remain positive on India, Korea and China,” Woods said.
Others shared the view that uncertainty was likely to be the flavour of the season.
“We would expect equity markets broadly to continue to correct lower on uncertainty, in particular in the key area of trade policy and future composition of FOMC (Federal Open Market Committee),” Morgan Stanley analysts wrote in a note.
“Central banks were key players in stabilizing markets after the Brexit vote, and they could be again, although this is arguably a bigger shock to expectations for the world’s largest economy. It is noteworthy that Fed Funds futures are now pricing a December rate hike at below a 50% probability,” Morgan Stanley analysts added.
Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd, said the market will take time to digest Trump’s victory over Hillary Clinton. “The decision was indeed a surprise for the markets which was largely pricing in a Clinton win,” said Chhaochharia.
“The fundamentals of world economy do not change as yet. We need to see how quickly he moves on his promises of fiscal spending and infrastructure build-out,” said Chhaochharia.
In emerging markets, the risk-reward ratio is no longer favourable and fixed income securities are preferable to equities, he said.
“However, within the EM equities space, we continue to be overweight India, as a relative call while in absolute terms, valuations do remain a concern,’ added Chhaochharia.
Provisional data from NSE showed foreign institutional investors sold a net of Rs2,095 crore of local equities on Wednesday.
On the domestic front, the Union government scrapped Rs1,000 and Rs500 bank notes, less than two months after the end of a scheme that offered people with untaxed assets to declare their holdings and escape prosecution by paying a penalty.
Ritesh Jain, chief investment officer of Tata Asset Management Co., said the Indian consumption story will be hit.
“This move will push up the value of debt. The bond yields on government bonds and high rated corporate bonds will come down. State governments can come under pressure as stamp duty collection takes a hit due to the impact on real estate. The move is deflationary in nature. It’s a reset on the system,” said Jain, adding that companies in high growth sectors with free cash flows will get further re-rated.
“Currency (rupee) will appreciate. It will be one more overhang on the exports where margins are also under pressure,” said Jain.
However, the move was seen as positive from a long-term perspective.
“Its about times Indians started paying their taxes,” said Gautam Trivedi, CEO of Religare Capital Markets Ltd.
“The government’s move on currency is a huge long tern positive, but negative for real estate and consumption stocks,” he added. “This will really help in weeding out black money, and will have a significant impact on the long term.”
S&P BSE Realty was the worst hit and was down 10.23%, hurt by the clampdown on black money. BSE Consumer Durables index followed next, with a 4.18% decline.
Market breadth was extremely negative in morning trade when more than 30 stocks declined for every stock that advanced on the BSE. At close, the ratio had turned far better, with only more than three stocks declining for every stock that gained on the exchange.
BSE mid-cap and small-cap indices fell more than the frontline stocks. They were down 1.85% and 2.66% respectively.
Two-third of Sensex stocks closed lower. Top software services exporter Tata Consultancy Services Ltd. and top car maker Maruti Suzuki India Ltd. dropped 4.93% and 4.68% respectively.
Pharma stocks managed to cap the losses for the index, as they recovered after Democrat Hillary Clinton lost the Us Presidential elections. Clinton was pressing for cheaper healthcare and her win would have meant lower medicine costs, which would have hurt the margins for these pharmaceutical companies, for which US is a significant market.
Dr.Reddy’s Laboratories Ltd. and Sun Pharmaceutical Industries Ltd. led the gains for Sensex. They closed 5.04% and 4.07% higher respectively.
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