Indian benchmark indices were under pressure on Wednesday following weak cues from worldwide markets worried about an imminent recession, prompting investors to dump risky assets.
The recent selling pressure suggests that there was further downside risk, analysts said. The immediate focus of global markets is the US Federal Reserve meeting and the Group of Seven summit this weekend for cues on steps policymakers would take to boost growth.
The Sensex ended at 37,060.37, down 267.64 points, or 0.72%, while the Nifty was at 10,918.70, down 98.30 points, or 0.89%.
The extended slowdown in the domestic economy has increased the volume of stressed assets in segments such as industrial, infrastructure and financials, said Vinod Nair, head of research at Geojit Financial Services Ltd.
“Weak international prices in segments such as metals, oil and gas, and exports, are increasing the volatility of the market. India is ending as a weak performer given the subdued business outlook, and a lack of revival in the short-term... action-packed reforms will be required to change the momentum," Nair added.
Investors are pinning their hopes on a stimulus from the Indian government to lift sentiments, analysts said.
High-frequency indicators continued to show familiar pain points—a deep contraction in consumption, weak investments, a slowing external sector, and an under-performing services sector— that have kept investors cautious.
“While the concurrent state of the economy remains quite disconcerting, nascent signs of green shoots and the positive performance of leading indicators provide some signs that a recovery may be slowly materializing," said Nomura in a 20 August report.
“There are also increasing signs of the government taking stock of the slowdown and possibly announcing some short-term measures to buoy business confidence, though we assess limited fiscal space for any substantive stimulus," the report added.
The Sensex has gained 2.75% so far this year, but weakened 1.12% in August with foreign institutional investors on a selling spree.
Foreign institutional investors sold Indian shares worth $1.19 billion in August, while domestic institutional investors were net buyers of shares worth ₹12,526.3 crore.
“The short-term trend of Nifty is down. The downside breakout of immediate supports at 10,980-60 levels could mean renewed selling enthusiasm in the market after a range move.The current chart could indicate more weakness in the short term and the next lower supports to be watched at 10,780-750 levels in the next few sessions," said Nagaraj Shetti, technical research analyst at HDFC Securities.