Indian markets catch Trump cold; Nifty falls 1%, Sensex closes 200 pts down

Rising streak snaps on concern about US presidency's rising troubles

After record highs for consecutive sessions, the Indian stock market's benchmark indices closed lower on Thursday. While the S&P BSE Sensex lost 224 points or 0.7 per cent to close at 30,434, the Nifty 50 on the National Stock Exchange closed at 9,429, down 96 points or one per cent.

Market participants said the fall was due to global cues. There was a sell-off in the US markets on Wednesday over concerns that newly elected President Donald Trump might even be impeached. The broader markets here saw a steeper fall, with the BSE midcap and smallcap indices losing a little more than two per cent each.

The Nifty's volatility index, India VIX, jumped almost 11 per cent to close at 11.7850. It had recently hit all-time lows on buoyant investor sentiment. Thursday's rise shows investors are now worried about the global developments.

The US news doesn't look positive from a markets perspective, say participants. And, could have a serious overhang on all global markets. Trump is under further scrutiny for allegedly asking then Federal Bureau of Investigation head, James Comey, to 'let go' of an investigation into the former national security advisor. The former FBI chief is to testify to the legislature there on Wednesday.

"If the global markets were to fall sharply, say with the S&P hitting 2,100, developments in the US can trigger a sell-off across these. Having said that, I will not write off the 'Trump trade' at this point. However, if the US event does last long, it will dent our inflows and impact flows from domestic investors," says Tirthankar Patnaik, India Strategist at Japan-based Mizuho Bank.

In recent months, markets across the world have been rising on hopes that Trump's policies would revive the US economy. Global markets, including emerging ones, have seen good gains. Analysts believe the markets will remain choppy till the former FBI chief concludes his testimony.

From a medium to longer term perspective, the monsoon and revival in corporate earnings would be important.

Interestingly, there was a noticeable gap in the fall witnessed by the two major benchmark indices, Sensex and Nifty. This divergence is due to the Nifty's higher weightage to banks and lower weight to defensives such as information technology (IT) and pharmaceuticals. At Wednesday's closing, IT and pharma together had a weight of 17.3 per cent in the Sensex against 16 per cent in Nifty. Further, banks have 24.67 per cent weight in the Nifty, against 22.7 per cent in the Sensex.

The top three IT stocks were up by one to 3.5 per cent on Thursday, lending support to the broader indices. TCS and Wipro went up by 3.5 per cent and 3.3 per cent, respectively, best gainers among Sensex constituents. This also helped the TCS stock again move above a Rs 5 lakh crore market capitalisation.

Shares of Tata Motors and Axis Bank, which fell 2.6 per cent and 2.1 per cent, respectively, were the worst in the Sensex.

Experts say the Indian markets are somewhat precarious, as the benchmarks have rallied significantly since the beginning of 2017. Both Sensex and Nifty are up by a little more than 20 per cent since January, globally the best performing equity indices. Valuations have become expensive. Foreign institutions have bought equities worth about $6.4 billion (Rs 41,600 crore) in the year so far; while domestic mutual funds have put in a little more than Rs 24,000 crore.

"Markets don't like uncertainty and the development in the US has created nervousness. If the situation aggravates and prolongs, we can see the Nifty 50 slip to 9,200 levels, a good support level. If this is breached on the downside, the next support levels are below 9,000," says U R Bhat, managing director, Dalton Capital Advisors.

Most of the Asian markets also ended weaker on Thursday. The Nikkei, Straits Times, Hang Seng and Taiwan Weighted slipped 0.4-1.4 per cent lower.