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Business News/ Market / Stock-market-news/  Sensex enters correction mode
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Sensex enters correction mode

Rupee sinks to weakest level since 2013 as foreign investors pare holdings amid global sell-off, rising oil prices

The 30-share benchmark Sensex gained 14% since the election to the end of 2014 and closed the year at 27,499.42 points. It is down 3.3% to 26,592 points since the start of 2015. Photo: MintPremium
The 30-share benchmark Sensex gained 14% since the election to the end of 2014 and closed the year at 27,499.42 points. It is down 3.3% to 26,592 points since the start of 2015. Photo: Mint

Mumbai: Indian stocks declined on Thursday, with the benchmark index entering a correction mode, and the rupee sank to its weakest level since 2013 as foreign investors pared holdings in the nation’s assets amid a global sell-off and rising oil prices.

The S&P BSE Sensex retreated 0.44% to 26,599.11, the lowest close in six months. The rupee touched 64.25 per dollar, the weakest since September 2013. The National Stock Exchange’s 50-share Nifty shed 0.49% or 39.70 points to 8,057.30 points, the lowest close since 18 December.

The yield on 10-year sovereign bonds rose to a five-month high as a 23% rally in Brent since end-March sparked concern about inflation and the scope for interest-rate cuts.

The Sensex lost 2.6% on Wednesday as global funds extended the longest sell-off in Indian shares this year amid concerns about profit growth. The gauge has fallen 10% from its 29 January record, meeting the definition of correction, amid growing concern about the government’s ability to push through reforms. The Sensex is the only one down this year in the BRIC group after rallies in Brazil, Russia and China.

Foreign investors have bought $6.86 billion in stocks so far this year but have sold $2.08 billion in 13 out of the 14 sessions ending 6 May.

Over this period, $165 billion in market capitalization has been eroded, pushing India to the 10th spot among global markets.

“The earnings season has been lacklustre, economic data hasn’t picked up as expected and rising oil prices don’t help India," Adrian Mowat, the chief Asian and emerging-market equity strategist at JPMorgan Chase and Co. in Hong Kong, told Bloomberg TV India. “Investors are reducing their overweight position in India and buying into other emerging markets."

Overseas funds sold a net $279 million of shares on 6 May, paring 2015’s purchases to $7 billion. They have been sellers every day since 22 April. Funds sold $413 million of bonds. Net inflows into local stocks and bonds was a record $42 billion in 2014 after Prime Minister Narendra Modi’s landslide victory in May, data compiled by Bloomberg show.

“None of core macro data on India has changed except for some adjustment on account of the rebound on oil prices. But equity investors are definitely re-assessing the expected returns and price-earnings multiples that Indian markets are trading at given the poor earnings performance," said Hitendra Dave, managing director, head of global markets, HSBC India.

Ashish Vaidya, head of trading, treasury and markets at DBS Bank Ltd, expects the currency to fall to 66.50 against the dollar in the next three months.

“Though the Indian long-term story is still intact the fundamentals are still susceptible to bouts of outflows which will be a challenge for the rupee in the near future," said Vaidya.

While developments such as a rise in US and European bond yields and a near 50% rebound in crude prices from the January have had an impact on markets across the globe, in India, waning expectations of foreign investors have played an important role.

While the Sensex has slid 3.3% this year, China’s Shanghai Stock Exchange Composite index has jumped 27%, Russia’s Micex index is up 21% and the Ibovespa Brasil Sao Paulo Stock Exchange index has climbed 14%. “Investors were overweight India, waiting for wonderful things to happen," Anil Ahuja, the Singapore-based chief executive officer of IPEplus Advisors, said in an interview with Bloomberg TV India on Thursday.

“Those things may or may not have happened but they are not showing up in company earnings."

In May 2014, after the Bharatiya Janata Party-led National Democratic Alliance government came to power, brokerage Macquarie Capital Securities (India) said it expected the government to build on the reforms initiated by the previous government in its last 15 months in office to revive growth.

In May 2015, it struck a more cautionary note even as it absolved the government of any blame for the slower-than-expected industrial turnaround. Expectations were way too high, the securities house reasoned, and are more realistic now.

While seven of the 12 Sensex companies that have announced results for the March quarter have beaten or matched estimates, net incomes for the gauge will decline for a second straight quarter, forecasts compiled by Bloomberg show.

The rupee weakened 1.1% to 64.24. The currency’s breach past 64 reduces chances of a rate cut at the 2 June Reserve Bank of India meeting, according to Bank of America-Merrill Lynch. The Reserve Bank of India has lowered rates twice in 2015 as a 49% plunge in oil in the 12 months through March helped cool consumer prices and cut the current-account deficit for Asia’s third-largest economy.

The retreat in global bonds and equities has wiped more than $2 trillion from markets worldwide in less than two weeks amid signs of price stabilization in Europe, speculation over US interest rates and concern about slowdown in China.

Federal Reserve chair Janet Yellen said on Wednesday that she sees potential danger in the rich valuations of both debt and stocks.

The yield on the 8.4% Indian government notes due July 2024 climbed 10 basis points, or 0.10 percentage point, to 7.993%, the highest close since 1 December.

The Sensex trades at 14.7 times projected 12-month profits, the cheapest since December. The MSCI Emerging Markets Index is valued at a multiple of 12.4.

Mint’s Ami Shah and Joel Rebello contributed to this story.

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Published: 07 May 2015, 05:04 PM IST
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