Mumbai: Indian equities fell over 1% on Thursday as investors remained concerned over slowing consumer demand and lower-than-targeted tax collection.
The benchmark Sensex closed 1.3% or 470.41 points lower at 36093.47, while the Nifty 50 was down 1.25% to 10704.80 points. After the sell-off on Thursday, Sensex lost 3.5% in the last four trading sessions.
According to a Credit Suisse report, fast-moving consumer goods companies are likely to post the worst revenue growth in the last 15 years as slowdown in the sector intensifies due to lower farm income, liquidity crunch, and rising unemployment.
A PTI report said the government has missed its tax collection target by a wide margin in April-September. As against a steep 17.5% higher tax collection budgeted for the full year, the government could mop up only 4.7% more so far this year, with the direct tax kitty growing to ₹5.50 trillion as of 17 September, up from ₹5.25 trillion a year ago.
"The fall in the market today is due to more domestic factors than international factors. Post the union budget 2019, the market has been correcting steeply chiefly on account of higher taxes. The consumer sentiments are low since two quarters in a row which is reflecting in the lower volume growth of the FMCG companies. Rural demand is still not picking up which has forced management of the FMCG companies to lower their volume growth guidance thereby hinting for weaker earnings in Q2FY20", said Foram Parekh, fundamental analyst, Indiabulls Ventures.
"The auto sector is seeing no sigh of relief despite the nearing of the festive period. The slowdown in FMCG and automobile sectors coupled with a liquidity crisis in the NBFC sector led to a dismal set of GDP data in Q1 FY20 which was reported at 6 years low, at 5%. Post 6 years of low GDP data, there were expectations from the government to reduce direct taxes in-order to kick-start consumption, failing to which all the market participants have turned net sellers in Indian equity markets", Parekh added.
According to Ajit Mishra vice president of Religare Broking, markets are in bad shape and the situation may deteriorate further in the absence of any major positive. The recent fall indicates prevailing uneasiness among participants, who expect some major announcements from the government to arrest slowdown signals.
Meanwhile, US policy makers were divided on the need for further rate cuts. The US Federal Reserve lowered the target range for its key interest rate by 25 basis points to between 1.75% and 2%, with Chairman Jerome Powell saying the “moderate" policy moves should be sufficient to sustain the US expansion.
Back home, investors focus on Reserve Bank of India Governor Shaktikanta Das‘ speech at the annual Bloomberg India Economic Forum later on Thursday. Vodafone Idea Ltd’s shares rose 12% after Telecom Regulatory Authority of India (TRAI) floated a consultation paper to see if there is a need to revise the applicable date for scrapping interconnect usage charges (IUC).
Banking stocks fell after Moody's said lenders such as Yes bank and Indusind Bank, which have the largest direct exposure to commercial real estate, would be susceptible to asset quality difficulties if the real estate sector continues to slow. Other banks like ICICI Bank and Axis Bank also have significant exposure to the sector. Yes Bank fell 15.5%, Indusind Bank 3.6%, ICICI Bank 3.2%, and Axis Bank 1.54%.