Lower than expected GDP numbers for India for the quarter ended June 2015, weak monsoon concerns and fresh data in China showing further weakness in its manufacturing saw the Indian markets extend their last week’s losses in line with the global markets.
The benchmark Sensex at the Bombay Stock Exchange fell over 700 points on Tuesday, before retracting to close at 25,696 witnessing a fall of 586 points or 2.2 per cent. The fall comes eight days after the Sensex fell over 1,600 points. Even the broader Nifty at the National Stock Exchange fell 185 points or 2.3 per cent to close at 7,785.8 on Tuesday.
Foreign institutional investors continued with their exit from Indian markets and sold equities worth Rs 675 crore on Tuesday. This follows a net FII outflow of over Rs 17,400 crore in August.
While the concerns around subdued monsoons, the announcement of GDP growth at 7 per cent for Q1 FY16, by the Central Statistical Office on Monday put the markets under pressure on Tuesday. Things turned worse later in the day as China’s purchasing manufacturing index showed further cooling in its economy. Experts feel that a possible rate hike by the US Federal Reserve later this month is also playing on the minds of investors as that will result in further fund outflows from the emerging markets.
The sharp volatility in crude oil prices has also raised the uncertainty. “Global volatility in oil and the Chinese stock market are rattling FII sentiments. Domestic interest is still intact. Possibility of rate cut is the only hope in the short run,” said, Raamdeo Agrawal, chairman, Motilal Oswal AMC.
Global market sentiments were also muted after International Monetary Fund (IMF) MD Christine Lagarde predicted a moderate global growth. “This reflects two forces: a weaker-than-expected recovery in advanced economies, and a further slowdown in emerging economies,” said Lagarde.
While the Shanghai Composite in China fell 1.2 per cent, the Hang Seng in Hong Kong fell 2.2 per cent. The Nikkei fell sharply by 3.8 per cent. Even the European markets traded weak on Tuesday and the premier indices in the UK, Germany and France were down by around 3 per cent.
In India the biggest losers were the banks, metal and real estate companies. With concerns over global growth mounting, the banks have come under pressure for their exposure to commodity-oriented firms and other companies that have exposure to China and other emerging economies. While the Sensex has fallen 8.6 per cent over the last one month, the banking index has lost almost 12 per cent. On Tuesday the selling was across all bank stocks after HDFC Bank lowered its base rate.
However, despite the prevailing uncertainties in global market, a Morgan Stanley research report said that India would stand out even though growth in the emerging markets is likely to be below its 30-year average. “India is also one of the few Asian economies that is not facing a high level of debt and demographics issues,” the report said. It added, “We believe this will be a longer duration expansion cycle for India with low risks of overheating in the next two years considering the overall policy approach of government and the RBI.”