Markets in India continued to fall on Thursday, with the BSE Sensex plunging 900 points to end the day down 1.4 per cent. The Nifty closed the day below the 19,000 level. Markets have, in fact, been weak for several weeks now. Over the past month, the Sensex has fallen around 4.5 per cent. It is now trading at a price to equity ratio of around 22, which is marginally lower than its long-term average. The Nifty VIX, a fear gauge, is up, indicating an increase in market volatility. However, India is not an outlier. Markets across Asia have witnessed a broad-based sell-off as investor sentiment has soured. The Nikkei fell 2.14 per cent on Thursday, and is down 5.5 per cent over the past month. Similarly, Kospi fell 2.7 per cent on Thursday, and has declined 6.7 per cent over the last month.
In India, the weakness is being seen across sectors. The Nifty Auto index was down 1.6 per cent on Thursday, while the bank index fell 1.3 per cent. Maruti Suzuki is down 1.7 per cent, Tata Motors fell 1.9 per cent, while Mahindra and Mahindra is down 3.89 per cent. In the financial space, HDFC Bank is down about 2.2 per cent, while Kotak fell around 1.9 per cent. Bajaj Finserv declined 3.68 per cent. Among the IT majors, TCS fell 1.7 per cent, while Infosys fared marginally better, falling 0.7 per cent. This weakness is, however, not just limited to the larger companies, but is more widespread. After a spectacular run in the recent past, both midcap and smallcap stocks have come under pressure. The BSE Midcap index is down roughly 5.2 per cent over the past month, while the Smallcap index has fallen by 3.4 per cent.
Domestic as well as global concerns are weighing down investors. On the domestic front, mixed second quarter results and sluggish rural consumption have raised concerns over the durability and strength of the underlying economic momentum. On the external front, the continuing conflict in West Asia and the possibility of yields staying higher for longer in developed economies such as the US are a major source of concern. The US 10-year bond yield has soared and is hovering around 5 per cent, a level last seen in 2007. The better than expected US home sales data released on Wednesday has raised questions over what rate is restrictive enough. A strong economy, coupled with inflation still well above the US Fed target, only increases the likelihood of interest rates staying higher for longer. This will have a bearing on portfolio flows and the currency. As per data from NSDL, monthly net investments by foreign portfolio investors have turned negative in September and October. These factors suggest that market volatility is unlikely to subside in the near term.
