The Indian stock markets closed in the red on Monday – the first trading session of 2018. While the benchmark S&P BSE Sensex fell 244 points or 0.72 per cent to close at 33,812.75, the broader Nifty 50 index fell 95 points or 0.9 per cent to close at 10,435.55.
In what was a volatile day of trading, the benchmark Sensex lost 250 points in the last 45 minutes of trade, as investors resorted to profit-booking. The NSE Vix, a gauge of volatility in the market, surged 5.4 per cent to 13.35. Even the broader market indices such as the BSE MidCap & SmallCap gave up the one per cent gains they made in the early hours of trade to close flat.
Foreign portfolio investors (FPIs) purchased equities worth Rs 3.25 billion, while domestic institutions net-sold shares worth Rs 13 billion, provisional data from the stock exchanges show. The selling by domestic institutions is the highest since November 7, 2017, the day they sold stocks worth Rs 20.5 billion.
Market experts said the fall was largely on account of profit-booking and absence of any global cues. Among the Asian markets, India was the only market open for trading on Monday. During 2017, Indian markets had rallied close to 30 per cent, evoking concerns that equities could be overheated.
On the global front, further escalation in the tensions between North Korea and the US also weighed down investor sentiment. The market also looked concerned about the minutes of the US Federal Open Market Committee (FOMC) meeting, scheduled to be released this week.
“Domestic indices succumbed to profit-booking pressures in the late hours,” said Anand James, chief market strategist, Geojit Financial Services. “Volatility index rose over five per cent as investors exhibited caution ahead of the FOMC minutes later this week and domestic inflation data release, scheduled next week. Persistent agitations from the Korean peninsula also added to investors’ anxiety.”
Shares of software giant TCS fell 1.7 per cent, the steepest among Sensex constituents. Shares of Hindustan Unilever, IndusInd Bank and HDFC fell 1.5 per cent, 1.45 per cent and 1.35 per cent, respectively.
The action is now expected to shift toward December quarter earnings and the Union Budget for FY19.
In the past one year, Indian markets defied lacklustre earnings and rallied on the back of optimism over macroeconomic recovery and a gush of liquidity coming from aggressive buying of portfolio investors.
“The performance of the Indian market in 2018 will largely depend on FY19 earnings meeting the Street’s estimates,” said Sanjeev Prasad, co-head and managing director, Kotak Institutional Equities. “Indian market now trades at 18.8 times the 12-month forward earnings and largely factors in the 23 per cent growth in the net profits for FY19. Worsening domestic macro conditions on the back of higher inflation and crude oil prices and weak global cues could be the major headwinds for the Indian equities during 2018.”
Analysts said the volatility in the Indian markets could go up in 2018, thanks to the multiple state elections scheduled this year. Any disappointment to the ruling Bharatiya Janata Party in these elections, ahead of the 2019 general elections, could hurt market sentiment. On the other hand, a populist Budget and enhanced rural spending could boost market sentiment further, analysts added.
A strong pipeline of capital market issuances such as initial public offerings (IPOs) and qualified institutional placements are also expected to bring activity in the market. 2017 was the best year ever for IPOs, with fund raising touching Rs 670 billion. During 2018, India Inc is expected to raise between Rs 300 billion and Rs 400 billion, estimates of IPO pipeline showed.