3rd week of bears in charge

Sensex, Nifty close near 4-month lows, FII selling continues

Bears continue to hold sway over the Indian market, with shares declining for a third week on continuous selling by foreign investors, amid expiry of monthly derivatives contracts.

The BSE Sensex and the NSE Nifty on Thursday closed 0.7 per cent lower at 27,011.31 and 8,181.50, respectively, the lowest since January 7. Unlike recent occasions, Thursday’s correction wasn’t restricted to the Indian market but in global equities, too, after the US Federal Reserve left the prospects of an interest rate increase open for this year.

The Sensex and Nifty, the two major bourses’ benchmark indices, have declined 6.5 per cent in three weeks. Blue-chip stocks Sun Pharma, Wipro and Infosys have dropped about 12 per cent. The benchmarks also dropped for successive months for the first time since August 2013.

Among Sensex companies, HDFC fell the most at 2.8 per cent to Rs 1,169, the lowest close since January 2014. Tata Steel, which fell 2.6 per cent, was the second-worst performing stock on the index. On a year to date basis, the Sensex has erased all its year’s gains and currently is down two per cent.
 

Sensex stocks that have declined the most in last 3 weeks | Create infographics

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“I think the correction (fall) is, more or less, done. I don’t see the market correcting much from these levels. At the most, we will see some consolidation. The recent correction has been due to multiple issues. But weak corporate earnings and MAT (Minimum Alternate Tax) notices on FIIs (foreign institutional investors) have really hurt sentiment,” said Nirmal Jain, chairman at the IIFL group.

FIIs continued to take money, off with provisional data showing selling of Rs 3,158 crore on Thursday. In the past 12 trading sessions, FIIs have been sellers on all occasions, barring one, amid uncertainties surrounding retrospective taxation. If not for the $2.6 billion of inflow on account of the Sun Pharma share sale, FIIs’ selling in these 12 trading sessions was a little over $1.7 bn (Rs 10,700 crore).

The income tax department has issued notices to FIIs demanding 20 per cent MAT on capital gains earned by them for a period prior to March 2015.

“The Nifty has corrected by 10 per cent from its life high and the market has experienced this type of severe correction for the first time in one and a half years,” said Debashish Mazumdar, analyst at Edelweiss.

Slow pick-up of spending in government infrastructure, weak corporate performance, leading to continuous earnings downgrades, unseasonal rain and monsoon uncertainty, and the MAT uncertainty on FIIs have contributed to the market correction, he said.

The Sensex dropped to as low as 26,897.54 due to the expiry of April series futures and options (F&O) contracts. Analysts said rollovers to the next series remained low, signalling weak sentiment.

“The rollovers in terms of open interest (contracts left unsettled) have been low. The initial correction in the market was due to long unwinding and creation of shorts. Now, we are seeing build-up of huge short positions. FIIs are continuous sellers. We haven’t seen this kind of selling in recent months. In the absence of FII flows, a sharp bounce-back will be difficult,” said Siddharth Bhamre, head of derivatives at Angel Broking.