Notwithstanding a GDP growth projection of 7.6 per cent for FY16 by the Central Statistics Office on Monday, the benchmark indices in India continued their slide in line with the global markets on account of increasing risk aversion.
While growth concerns in China and softening global crude oil prices pulled the equity markets down in January, the strengthening in Japanese Yen and decline in Japanese bond yield into the negative territory led the decline in the global market on Tuesday. While the Nikkei 225, the premier index in Japan fell 5.4 per cent on Friday, the benchmark Sensex at the Bombay Stock Exchange fell 266 points or 1.1 per cent to close at 24,020.9 on Tuesday. The broader Nifty at the National Stock Exchange fell 1.2 per cent to close at 7,298. Decline in IT stocks, which fell by up to 5 per cent as Cognizant lowered its growth projections, also put pressure on domestic markets.
Since a strengthening Yen against the dollar is expected to make Japanese exports less competitive, the market is concerned about pace of recovery in Japan. The fall in Japan also pulled down the European markets on Tuesday as premier indices in UK, Germany and France were down between 1 and 2.6 per cent in the afternoon trading hours on Tuesday. The fall in the markets on Tuesday followed the weakness on Monday in the European and the US markets.
The FII investment sentiment continued to remain weak and they pulled out a net of Rs 680.7 crore from the Indian equities on Tuesday.
Vinod Nair, head of research at Geojit BNP Paribas Financial Services said that concerns around global events has increased risk averseness and that is weakening the equity markets. “In spite of the revamp in GDP forecast to 7.6 per cent, due to the increase in 9-month GDP (April – Dec), the market is not positively reacting because of the negative influence from global events. Gold has surged by more than 10 per cent YTD, Japan’s 10-year government bond yield has come in the negative terrain and the Yen has climbed to more than a one year high against the US dollar. This highlights the elevated risk averseness and the unpredictable impact in the equity market,” he said.
While the premier indices at BSE and NSE fell by up to 1.2 per cent, the fall was more pronounced at the mid and small cap indices. The mid cap index at the BSE fell 1.9 per cent whereas the small cap index lost 1.3 per cent during the day.