The stock market’s pain intensified on Wednesday with the benchmark BSE Sensex plunging 440 points to close at an over three-month low as investors pared bets triggered by a weakening rupee and foreign capital outflows amid fears over weak corporate earnings and slowing economic growth. Clashes between the Indian army and insurgents across the India-Myanmar border further dented already weak sentiment. With Wednesday’s fall, the Sensex has fallen 1,211 points in the last four trading sessions.
The rupee took a hammering, sinking to over a six-month low of 65.75 against the dollar before closing at 65.72/73 per on concerns that foreign capital will move out sooner than later after US Fed Chairperson Janet Yellen’s comments that the US Fed should stick to gradual rate hikes despite the uncertainty about the inflation trajectory. This was enough for foreign investors to hit the exit button, looking for instruments that yield better returns.
The lingering Korean stand-off dealt a further blow after US President Donald Trump dialled up his threats saying America is “totally prepared” for a “military option” on North Korea, warning that would be “devastating”. “Updates of military action on the eastern border with Myanmar hastened the market’s fall, which has been on a slippery slope ahead of the derivatives expiry on Thursday,” said a dealer.
With bulls on the run for the seventh day, the Sensex settled lower by 439.95 points, or 1.39 per cent, at 31,159.81. This is the weakest closing since June 30 when the gauge had settled at 30,921.61. It had lost 824 points in the previous six sessions. The 50-share NSE Nifty, which after regaining the key 9,900-mark at one stage, closed down 135.75 points, or 1.38 per cent, at 9,735.75 — a level last seen on August 11 when it closed at 9,710.80.
Vinod Nair, Head of Research, Geojit Financial Services, said, “market extended losses while rupee sunk to a six month low on continued outflow of foreign funds. Additionally, slowdown in GST tax collection dented the sentiment and investors expected that the GST led disruption is likely to extend and will hurt the earnings for the next few quarters which refrain them to stay away from the market.” While foreign portfolio investors (FPIs) sold shares worth Rs 1,915.54 crore, domestic institutional investors (DIIs) bought shares worth a net Rs 1,537.10 crore on Tuesday, according to provisional data.
A bevy of IPOs and FPI outflows had sucked liquidity from the market. “Updates of military action on the Eastern border impelled the market to hasten the market’s falls which was already in a slippery slope ahead of F&O expiry. Sharp weakness in rupee and a rise in VIX also meant that risk takers were few. FIIs being reluctant buyer in Indian equities this month, and a volley of IPOs had earlier meant that the secondary market was finding hard to sustain at the 20-month peaks,” said a dealer.
Investors’ wealth, or market capitalisation of listed companies, fell by Rs 179,524 crore, to Rs 130,55,056 crore.
According to Karthikraj Lakshmanan, Senior Fund Manager, BNP Paribas MF, participants took to selling relatively risky assets like emerging market equities after Janet Yellen signaled the possibility of an interest rate hike in the US.