Bears on prowl: Indices retreat most in 7 months, RIL falls over 4%

Reliance's decline, rollback of farm laws weigh on investor sentiment

The Indian markets posted their sharpest decline in nearly seven months on Monday as a tsunami of factors impacted investor sentiment. 

Paytm’s listing fiasco, the sharp drop in shares of index heavyweight Reliance Industries (RIL), and the rollback of farm laws were among the domestic factors that weighed on sentiment. The resurgence of Covid-19 in Europe and fears around US tapering, too, played on investors' minds.

In intraday trade, the Sensex dropped as much as 1,624 points, or 2.7 per cent. The 30-share index recouped some losses to end at 58,466, down 1,170 points, or 1.96 per cent, wiping Rs 8.2 trillion of investors' wealth. The Nifty, on the other hand, ended the session at 17,432, a decline of 332 points or 1.8 per cent. This was the steepest single-day decline for the indices since April 12 this year. In the past four sessions, the Sensex has lost 2,253 points or 3.7 per cent — underperforming most global peers.

The stock of India’s most valuable company RIL fell 4.4 per cent and dragged the Sensex down by 318 points. This after RIL announced that it is re-evaluating Saudi oil major Aramco’s proposed investment in the company. Reliance and Aramco, in August 2019, had signed a non-binding agreement for a 20 per cent stake sale to the Saudi firm in the former’s oil-to-chemical business.

The sharp decline in shares of digital payment’s major Paytm also dented investor confidence. Since its debut, Paytm’s market capitalisation has plummeted by Rs 51,194 crore.

"The decline in Paytm shares was sharp, and it dampened the sentiment of retail investors, who have taken a big hit. Some of them may sit on the sidelines for a while. The news about RIL came on the back of a weak market, adding to the volatility. But it has been a well-performing market; a 5-10 per cent correction is expected. If it consolidates at that level, we don't have much to worry about. Liquidity is still there," said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

“People remembered another high-profile IPO in 2008 that listed at a discount. That was the precursor to the bear market. People though this could be another bubble burst. And in addition, we had India’s biggest company having problems with what it announced in the past,” said U R Bhat, co-founder and director, Alphaniti Fintech.

The Sensex is now down more than 5 per cent from its all-time high of 61,625 that it hit about a month ago. The decline follows concerns raised by a host of foreign brokerages on India’s expensive valuations. Analysts have emphasised that the sharp run-up this year has made the risk-reward unattractive.

Meanwhile, rising Covid-19 cases in Europe has led many countries to impose strict lockdown measures, triggering risk-off bets. The imposition of restrictions in Europe has led to widespread protests in Austria, Italy, the Netherlands, Switzerland, and Croatia.

The Indian government’s decision to roll back the three controversial farm laws, yielding to the protests by farmers, has also affected investor confidence, said experts. On Friday, Prime Minister Narendra Modi announced to repeal of the three laws in the upcoming Winter Session of Parliament.

“Farm laws’ withdrawal is a setback. With elections in key states around the corner, farm bodies may harden their stance on some other issue. The question is will the government give in to more demands,” said Ashutosh Tiwari, managing director-equities, Equirus.

The market breadth was negative, with 2,571 stocks declining and 843 advancing on the BSE. All the Sensex components, except three, declined. Also, all the BSE sectoral indices, barring two, slipped. Energy stocks declined the most, and their gauge fell 3.9 per cent. Shares of Airtel rose close to 4 per cent as investors cheered its decision to raise tariffs.