Global risk aversion halts bull charge on D-Street

Sensex, Nifty fall nearly 1% from their October 2015 highs

The Indian markets retreated on Thursday from a seven-month high, after investors chose to take profits amid global risk aversion ahead of a US Federal Reserve meeting

The BSE Sensex tripped nearly one per cent or 257 points to end below the 27,000-mark at 26,763. The National Stock Exchange’s Nifty50 barely defended the 8,200 level to close at 8,204, down 69 points or 0.8 per cent.

The fall was led by index heavyweight Infosys, down four per cent on growth worries. The correction comes after a steep seven per cent gain in the benchmark indices since May, which had propelled them to the highest levels since October 2015.

The global sentiment saw most Asian markets end with losses, while European markets opened one per cent lower. Experts said investors turned cautious as the US Fed was set to meet next week; the impending decision on whether Britain decides to stay in the European Union or not has also kept them on their toes.

In a recent report on Indian equities, HSBC noted the bets on risk aversions have increased. “We think that, aside from the domestic economy, risk aversion will increase because of international developments, such as a possible rise in US interest rates this month, politics in Europe, and the health of China’s economy.”

The commodity market also came under pressure on Thursday. Crude oil prices dipped after hitting a 2016 high on Wednesday. Brent crude was trading at $52.23 a barrel at 4:30 pm. In precious metals, gold, aluminum and copper also fell.

Infosys dropped amid concern over volatility in near-term revenue growth. Dr Reddy’s Laboratories declined two per cent after the US Consumer Product Safety Commission accused the company of violating the rules on child-resistant packaging for five products. The drug maker said that it “firmly disagrees with the accusations”.

On the flip side, oil & gas shares were among the gainers, with Reliance Industries and Oil & natural Gas Corporation gaining nearly two per cent each.

Surprise gainers on Thursday were several stocks from the public sector undertaking (PSU) pack. MMTC gained 17 per cent, Hindustan Copper rallied 12 per cent and Steel Authority of India 6.8 per cent. Market players said beaten-down PSU stocks had come on traders’ radar after the current rally caused a spurt in these counters.

HSBC analysts suggest in this market, it is better to switch to growth stocks. “With risk aversion set to return globally, go for defensives instead of cyclical stocks. Defensives are relatively cheap.”

Further, in its quarterly outlook on Asia, DBS has upgraded India’s position from ‘underweight’ to ‘neutral’. “Optimism on the economy is strong. Fiscal reforms and potential rate cuts are enough to keep the strong momentum going.”

Foreign institutional investors were net buyers on Thursday, of shares worth Rs 234 crore.

Meanwhile, the Foreign Institutional Investors (FIIs) were the net buyers on Thursday as they bought shares worth Rs 234.2 crore as per stock exchange data.