In a late sell-off, Indian equities slipped nearly 1% on Friday as investors are worried about an escalating trade row after India imposed retaliatory tariffs on a bunch of US products. The BSE Sensex ended at 39,452.07, down 289.29 points or 0.73%, while the Nifty closed at 11,823.30, down 90.75 points or 0.76%.
India has decided to impose the long-pending retaliatory tariffs on 29 US products after Washington withdrew duty-free benefits for Indian exporters effective 5 June.
Heavy selling pressure in the final hour of trade, on the back of weak global cues and poor data from China, led to the steep fall in the Nifty, according to Deepak Jasani, head retail research, HDFC Securities. “World stocks struggled and safe haven bets were back in play on Friday with German bond yields plumbing to record lows as Chinese data rekindled woes about the health of the global economy and fears of a new US-Iran confrontation intensified," said Jasani.
“The markets have grown concerned if the US will impose further tariffs or take other action on Indian goods or services following the recent move. This may impact Indian export business if the trade war threats escalate amid ongoing negotiations. A sharper down move in the markets may be expected only when foreign institutional investors get nervous if the US takes any counter action on India," Jasani added.
Markets worldwide were under pressure due to geopolitical tension in West Asia. Stock markets in China, Hong Kong and Korea were weak on Friday. China’s industrial output growth slowed to the weakest pace since 2002, highlighting the headwinds that the economy is facing, as it grapples with the tariff war with the US.
Vinod Nair, head of research, Geojit Financial Services Ltd, said the ripple effect from a weak global market, premium valuation and a slow economy, are hurting the markets. “Continuous exchange of words between the US and Tehran regarding the oil tanker attack, the progress of US-China trade-war, Federal Reserve policy outcome on 19 June, and progress of monsoon will be closely watched by the investors. The market is cautious today awaiting these important events, while companies highly leveraged are being mostly impacted," Nair added.
Meanwhile, the Indian rupee on Friday weakened for the second straight session, to hit a two-week low against the US dollar, tracking losses in the Asian currencies market on weak China data, as risk sentiment remained fragile on trade and geopolitical concerns.
The rupee ended at 69.80 a dollar—a level last seen on 30 May, down 0.41% from its previous close of 69.51. The Indian currency had opened at 69.58 a dollar.
So far this year, the rupee has fallen 0.04% against the greenback. During the period, foreign investors bought $11.26 billion in Indian equities and $1.35 billion in the debt market. Asian currencies were trading lower with the Indonesian rupiah down 0.31%, Philippines peso by 0.26%, South Korea’s won was down 0.18%, Taiwan dollar fell 0.11%, and China Offshore slipped 0.05%. However, the Japanese yen was up 0.14% and Thai Baht gained 0.09%.
There is widespread optimism that the US Federal Reserve will ease monetary policy in its 18-19 June meeting to counter a slowing global economy due to the escalating trade war with China. Investors will wait to see if the Fed’s monetary policy stance is in sync with market expectations for a near-term rate cut.