Financial markets have been sideswiped since a sudden escalation in Sino-US trade tensions in early May
Geopolitical tensions in the Middle East added another layer of uncertainty for investors
Mumbai: Indian markets extended losses on Monday as both global and local worries kept investors’ risk appetite in check. Investors worldwide were on tenterhooks due to geopolitical tensions in West Asia and Hong Kong, while trade tensions between the US and China escalated. Domestic investors were cautious due to deficit monsoon rains—crucial to addressing rural distress and driving consumption and the overall economy.
The BSE Sensex ended at 38,960.79, down 491.28 points or 1.25%, while the 50-share Nifty was at 11,672.15, down 151.15 points or 1.28%.
Jagannadham Thunuguntla, senior vice-president and head of research (wealth) at Centrum Broking Ltd, said markets have been finding it difficult to sustain at elevated levels on the back of muted corporate earnings, slow progress of monsoon rains, continuing corporate defaults and growing concern over India-US trade disagreements.
“To change the market sentiment now, a lot depends on the Union budget of the new finance minister, though she has to achieve the take-off with a short runway of just 30-35 days post assuming her role," he said. “Markets will welcome it if the budget offers any fiscal respite to stimulate the economy as monetary policy could not kindle economy due to lack of transmission (of interest rate cuts)."
The slow progress of the south-west monsoon may worsen the drought-like situation prevailing in many states, with overall rainfall deficit in the first half of June widening to 43%. The June-to-September monsoon made a delayed onset over the Kerala coast on 8 June and has been advancing at a sluggish pace over the mainland. The monsoon is yet to mark its arrival in Andhra Pradesh, Telangana, Maharashtra and Odisha, according to the latest update by the weather department.
Markets worldwide were subdued over fears US President Donald Trump might impose further tariffs on $300 billion of Chinese goods. Markets in China and Japan were flattish, while Hong Kong was up 0.4%.
Threats to the global growth outlook from trade protectionism have been rising at an alarming rate in recent months. Fitch Ratings now sees world growth at 2.7% in 2020, down from 2.8%, with slower growth in China, the US and Brazil on deteriorating prospects for business investment, lingering weakness in consumer spending growth in China and a softer growth outlook for other emerging markets.
“While falling short of a global recession, this would be the weakest global growth rate since 2009 and slightly worse than 2012, when the euro zone sovereign debt crisis was at its peak," Fitch Ratings said in a report released on Monday. The breakdown of US-China trade negotiations, the US Section 232 investigation into auto imports, the recent use of a US tariff threat to pressure Mexico to change migration policies and rising chances of a no-deal Brexit all raise the possibility of disruptions to global trade that could have a much bigger impact on the world economy than anything seen over the course of 2018, it said.
Investors also seem to be nervous ahead of a closely watched US Federal Reserve meeting scheduled on Tuesday and Wednesday. The meeting is widely expected to signal another dovish shift in US monetary policy.
Foreign institutional investors have been net buyers of Indian equities, pumping in $11.24 billion so far this year. Higher interest rates tempt large foreign funds to move their money to the US, hurting emerging markets including India. Inflow of foreign liquidity is critical to Indian markets, which have seen a steady sell-off by domestic investors. Domestic institutional investors have bought shares worth ₹12,721 crore in 2019 so far.
In 2019 so far, in dollar terms, MSCI India has gained 6.24%, while the MSCI World and MSCI Emerging Market indices have risen 13.11% and 5.11%, respectively.