Indian stock markets log worst weekly losing streak in 25 years, fall another 1%

Automobile stocks were among the worst performers during the day and were a key factor for the sharp fall of the benchmark indices midway as auto sales for September failed to meet market expectations. Bajaj Auto tanked around 8%. Mahindra & Mahindra fell 3% to a 52-week low. Maruti Suzuki India also shed around 5% to fall to a 52-week low.

Barring IT, all other sectoral and broader market indices ended deep in red. The Nifty IT bucked the trend and gained 2%, with the likes of Mphasis, Coforge, and Infosys adding around 4%.

“The key takeaway for October is that domestic fundamentals alone may not be sufficient to drive a sustained recovery while global liquidity remains tight,” said Vikram Kasat, Chief Business Officer for advisory and dealing at PL Capital.

Foreign selling continues

Foreign investors kept selling Indian shares as rising bond yields, elevated crude prices, and a weak currency squeezed any value to be derived out of the Indian market. Oil prices were at $100 per barrel, while US Treasury yields remained at their highest levels since 2002 amid inflation fears.

Foreign institutional investors (FIIs) had dumped shares worth around $1.1 billion on Wednesday, taking cumulative sales during the month to around $3.8 billion. This came after FPIs had bought Indian shares for two straight months prior.

In the first half of September, the financial services sector had seen the sharpest outflows at $647 million, according to data from the National Securities Depository Ltd. The automobiles sector had seen outflows of $278 million. Oil and gas and fast moving consumer stocks had also seen significant foreign funds pulled during the period. Data for the latter half of the month has not been released yet.

The Reserve Bank of India’s (RBI’s) Monetary Policy Committee will meet next week, with the market expecting the committee to hike the repo rate by 25 basis points as inflationary concerns grow. This may be a negative for the market and foreign investors in the near term as it further reduces the interest rate differential between the US and Indian markets in the wake of higher bond yields, according to experts.

Interest rates, festive demand key; West Asia weighs

A higher interest rate differential attracts FIIs due to higher returns, while a lower interest rate differential accelerates foreign outflows from emerging economies like India, especially when US bond yields provide a much better and risk-free proposition. The festive season this month, meanwhile, will be a big indicator for the demand environment.

The situation in West Asia, which has dragged on since late February, has continued to weigh on the Indian markets. Negotiations between the US and Iran have moved back and forth for months without any significant conclusion.

US President Donald Trump on Thursday said the US will either “make a deal” or resolve the situation by “maybe by blowing them up”, doing little for hopes of a ceasefire held by market participants so that focus could turn to more fundamental factors like earnings and economic growth.