Likely fall in Q2 GDP, profit booking: 5 factors that dragged markets lower

Reliance Industries (RIL), which to hit the market capitalisation of Rs 10 trillion-mark on Thursday, was down around 2 per cent in the session.

After scaling record highs in the previous session, stock market came under pressure on Friday amid heavy selling in metals, fast moving consumer goods (FMCG) and auto counters. The S&P BSE Sensex slipped as much as 466 points, or over 1 per cent, in intra-day trade to hit a low of 40,664.18 during the day. NSE's Nifty50 index slipped below the crucial 12,100-mark to hit a low of 12,017 levels, down 134 points or 1 per cent during the day.

The S&P BSE Sensex, however, recouped some of its losses and closed 336 points, or 0.82 per cent lower at 40,794. NSE's Nifty50 index closed the session at 12,056, down 95 points or 0.78 per cent. READ MORE HERE

Analysts attribute the fall to both global news-flow, especially surrounding the US-China trade deal and the expectation of a sharp slide in the gross domestic product (GDP) data for the second quarter of the current fiscal (Q2).

“We believe that the current positive momentum can sustain in the near term on the back of liquidity flows and positive sentiments. However, some volatility may be expected due to global news flows regarding US China settlement and weaker than expected Q2 GDP data which would be released on Friday,” Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, said on Thursday.  

Here's a look at the key reasons that dragged the market lower today:

GDP data may disappoint: Expectations of lower economic growth in the September quarter made market participants cautious on Friday. It is widely expected that the second quarter GDP print will slip below 5 per cent on subdued consumer demand, weakening private investment and falling exports courtesy global slowdown. The data is due post market hours on Friday. Analysts at Centrum Broking expect GDP growth for the second quarter to sink to 4.5 per cent, as compared to 7 per cent growth in the year-ago period. (Q2FY2019). On the other hand, Reuters’ poll pegs the Q2 GDP growth rate at 4.7 per cent.

“Because of relatively more subdued performance of the leading service and industry indicators in Q2, the moderation in growth is largely anticipated to be of such magnitude. A late monsoon, which affected kharif output and a slump in mining, manufacturing and electricity production, in all probability, is largely attributable to the broad based slowdown and lacklustre growth,” the brokerage said in its report dated November 28.

Sharp rally: Market has rallied too far too soon, analysts said, and the correction was bound to happen. The benchmark S&P BSE Sensex has gained over 4 per cent in the last one month alone. Besides, BNP Paribas and Credit Suisse have sounded a note of caution on record market run.

"A slowing economy hasn’t stopped India’s benchmark equity index from climbing to a series of records this year, but this divergence may have run its course, according to BNP Paribas," Bloomberg reported. Analysts at Credit Suisse echo similar views. 

Profit-booking: All the recent outperformers slipped up to 2 per cent as investors booked profit. For instance, Reliance Industries (RIL), which created history on Thursday by becoming the first Indian company to hit a market capitalisation of Rs 10 trillion-mark, was down around 2 per cent in the session. The stock had gained over 8 per cent in the last one month. That apart, ICICI Bank, HDFC Bank, and SBI, too, fell up to 2 per cent. SBI has rallied around 22 per cent in the last one month, while ICICI Bank has gained 9 per cent during this period. 

F&O expiry: Since the November series of futures & options contracts (F&O) expired yesterday, hence all the short-covering that had to happen is over now, analysts said. Nifty rollover, according to a Geojit Financial report, stood at 79.64 per cent as against 84.09 per cent in the last expiry. Near-month and far-month contracts closed at a premium of 34.9 and 73.8 points, respectively. 

"With calls in the new series seeing on the money (OTM) shorts and ITM longs, as well as puts seeing short build up, a cautious range bound movement is expected initially. However, with OTM calls seen open interest (OI) above 12500, upside expectations continue to be strong over the medium term," the Geojit report said.

Those at Angel Broking, too, remain optimistic on the markets, albeit from a medium to long term perspective and advise traders to trade with a positive bias. "The near term targets for the Nifty are seen around 12180 and 12290 whereas 12000-11960 is the immediate support range," their analysts said in a post F&O expiry note.

RBI rate-setting meet: Investors were also cautious about the Reserve Bank of India’s rate-setting meeting scheduled for the next week. Most analysts see the monetary policy committee (MPC) slash rates by up to 25 basis points (bps), along with a marginal cut in FY20 gross domestic product (GDP) growth forecast. READ MORE