Business
What is spooking Indian equities? (News Analysis)
By
By Rohit Vaid New Delhi, June 14
From an all-time high that
was touched in the first week of March to the latest trading day, two
key equity market indices have taken a beating of around 12 percent.
This, at a time when India's growth forecasts have been upgraded by a
host of global financial institutions. IANS analyses what's gone wrong.
On
March 4, the sensitive index (Sensex) of the Bombay Stock Exchange
(BSE) touched an all-time high of 30,024.74 points during the
intra-day. From there, the barometer index of 30 shares has dipped
3,599.74 points, or 13.62 percent, to 26,425 points.
In the case
of the broader CNX Nifty of the National Stock Exchange (NSE),
comprising 50 shares, the fall has been a little sharper -- from an
intra-day peak of 9,119.20 on March 4 to 7,982.90 points at close on
Friday is a fall of 1,136.30 points or 14.23 percent.
Till
mid-April, Nifty was still comfortably placed at 8,850 points. But
there onward the fall began. This was also when foreign funds turned
net-sellers. Having bought Rs.48,194 crore worth of equities in the
first four months of 2015, they pulled out Rs.7,078 crore from May 1 to
June 12.
"Mainly global rise in bond yields, poor corporate
earnings vis-a-vis the higher expectations had a negative impact," said
Devendra Nevgi, chief executive of ZyFin Advisors.
"The premium
valuation of some stocks, lack of reforms momentum, the private capex
and consumption not taking-off, and the central banks's reluctance in
cutting rates further have been other reasons for fall," Nevgi told
IANS.
Sachin Shah, head of Emkay PMS elaborated to IANS that
sometime around January-February 2015, the markets valuations were
running a bit ahead of time, considering the third quarter results,
which clearly showed the trends of lower aggregate demand.
"In
the fourth quarter, the markets once again got the confirmation of a
slowdown in consumption. Markets gave therefore corrected to factor-in
low economic and earnings growth in the short-to-medium term," Shah
said.
While weakening of rupee against dollar, forecast of less
than average rainfall, Greece default and the expectation of US Fed
rate hike by September were others for the downward trend Gaurav Jain,
director of Hem Securities cited to IANS.
Even the impact on the
markets, thanks to the dramatic win for Prime Minister Narendra
Modi-led Bharatiya Janata Party (BJP), which was perceived as being the
most business-friendly, also seemed to have been waning.
"There
is generally a lag between expectation and reality. In the new
government's case, the expectations had risen way bit quickly," said
Anand James, co-head of technical research with Geojit BNP Paribas.
He
said foreign investors also got worried and began to pull out funds as
since they felt that the government's failure to push key reforms --
like the two crucial bills on goods and services tax and land
acquisition -- due to lack of majority in the Rajya Sabha, the upper
house of parliament.
"Issues such as policy normalisation by the
US Fed and weak Indian macros and micros, hare making investors to roll
back their long trades," said Anindya Banerjee of Kotak Securities,
adding also that the hang-over effect of the cocktail of a major
political change was also getting cured.
But Shah and other
analysts felt the markets still hope the government will be able to
push some major reforms. They said the coming six months will prove if
investor confidence is re-built with massive spending on infrastructure
and companies manage to improve their balance sheets.
Banerjee
said improvements are also necessary on ease of doing business and
access to funds. "The financial system is to the economy, what an
engine is to a car. Unless it is cleaned and oiled well, the engine will
keep breaking down," he said.
"Another major trigger will be
the timing of the US Fed rate hike -- before or after September," said
James. "A steep and sustained rate hike may turn out to be negative for
Indian markets. But that's not anticipated at this point of point."
(Rohit Vaid can be contacted at [email protected])