Domestic markets declined over 2 per cent on Friday to close at their lowest levels in nearly 14 months on weak global cues amid caution ahead of a key US jobs report , which was released after the close of Indian bourses.
After Thursday’s 311-point gain, the 30-share BSE Sensex remained under pressure during the day and touched a low of 25,119.06 before ending at 25,201.90, a steep fall of 562.88 points, or 2.18 per cent. The broader NSE Nifty too, came under all-round selling and slipped below the crucial 7,700-mark to settle lower by 167.95 points, or 2.15 per cent, at 7,655.05.
Thursday’s gains were driven by ECB President Mario Draghi saying the bank was prepared to expand its one trillion euro stimulus programme aimed at lifting growth and inflation in the euro zone. But Friday’s focus was on whether US jobs data due later in the day would keep the Fed on track to raise its record low interest rates later this year.
In the recent weeks, global equities and currencies have been impacted by sudden devaluation of the Chinese currency yuan and the possibility of a rate hike by US Fed. “So far as India is concerned, the delay in passing key reforms has also contributed to the disappointment among investors. Going forward, the US August jobs data which is slated to be released on Friday would be closely watched as a strong reading would bolster the case for a rate hike. Given the weak investor sentiment that is prevalent at present, a rate hike may not go down well with most emerging markets,” said Sanjeev Zarbade, vice president, Private Client Group Research, Kotak Securities.
According to analysts, a strong set of non-farm jobs numbers is expected to cement Fed’s stance for a rate hike in September. The prospect of a higher US rate, which leads to risk aversion in riskier assets, has so far roiled the scene in emerging markets, which have run up massive losses of late. The signals from Europe that it’s willing to shore up its economy were not enough to assuage the fears of foreign investors.
Jayant Manglik, president, retail distribution, Religare Securities, said, “After a day’s respite, markets nosedived on Friday and lost over two per cent by the end. Weak cues from the Asian peers alongside with figures showing continuous selling from the foreign investors were weighing on the sentiment. Besides, participants upheld cautious approach ahead of US non-farm payroll data as majority expects further improvement may result in rake hike by Fed in the upcoming policy meet.”
Vijay Singhania, founder-director, Trade Smart Online, said, “globally, investors have turned nervous following the Shemitah, the last year of a seven-year cycle in the Jewish calendar. September 2015 is another Shemitah, which ends on September 13. Shemitah in the past has brought immense financial hardships to the world. Global investors are facing redemption pressure in a risk-off environment. Uncertainty over the US Fed rate hike is spooking global markets and the domestic markets no exception.”
Most analysts said further downside in Nifty cannot be ruled out in case US Fed hikes rates in September. “We note that valuations are coming back to reasonable levels and long term investors should go for buying stocks of quality companies,” Zarbade said.