Sensex, Nifty shed 1% on fears over fiscal situation, US-North Korea tension
Mumbai: Indian equities fell their sharpest in nine months on Friday, hurt by a possible deterioration in the government’s fiscal situation while US-North Korea geopolitical tensions continued to rattle global markets.
The Sensex closed at 31213.59 points, down 1.01%. The 50-stock Nifty slipped 1.11% to 9,710.80. Mid-cap and small-cap stocks were hit the most, with their benchmark indices falling 4.3% and 5.5% respectively this week. The Sensex and Nifty were down around 3.5%, their worst weekly performance in 18 months.
“Investor sentiment is weak due to tensions between the US and North Korea. Risk is off the table,” said Vaibhav Sanghavi, co-chief executive officer, Avendus Capital Public Markets Alternative Strategies Llp.
Stocks in China, South Korea and Indonesia fell more than 1% as Trump stepped up pressure on North Korea, promising a response to any strike against America or its allies. Markets in France, the UK and Germany also opened more than 1% down on Friday.
In India there were other reasons for concern, too. The mid-term Economic Survey released on Friday said that meeting the economic growth target of 6.75-7.5% for this fiscal looks difficult.
Analysts said that the Reserve Bank of India paying lower dividend to the government may hit investors’ sentiments too. On Thursday, the central bank said that it would pay Rs30,659 crore as a dividend to the government, less than half the surplus it transferred the previous year, potentially affecting the government’s fiscal math this financial year.
“It is too early in the year to judge if it will negatively impact the government’s fiscal situation...,” said Sanghavi. “That said, there is pressure on the government’s end to garner resources. We also need to see how GST (goods and service tax) pans out in adding to government’s coffers.”
Questions on the worse-than-expected June quarter earnings and high valuations have been bothering analysts as Indian shares continued their rally this year.
“We are at an interesting juncture. On one side policy reforms and (the) structural story remains robust. (However), cyclical weakness and rich valuations coupled with lack of earnings growth bother the markets,” said Navneet Munot, chief investment officer at SBI Funds Management Pvt. Ltd.
Earnings performance in the first half of the current fiscal is likely to end in disappointment because of the uncertainty from GST implementation, said brokerage Prabhudas Lilladher in a 10 August report. Markets are living on hope and expectation and not on earnings, it said.
However, there is still optimism left in the markets. According to Vikas Khemani, president and chief executive officer at Edelweiss Securities, the markets are just going through a correction.
“Corrections are healthy as the markets were overheated. They will rebound soon,” he said.
So far this year, the Sensex has gained 17.23% and Nifty 18.63%, buoyed by institutional buying of stocks. Since the beginning of 2017, foreign institutional investors have bought a net $8.93 billion of Indian stocks and local mutual funds and insurance companies have invested Rs30,394.10 crore.
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