Markets fall on rupee, macro pressure and tensions over US-China trade war

Equity markets on Thursday came under heavy selling pressure, particularly stocks in the small-cap and mid-cap space, on concern over deteriorating macroeconomic fundamentals, with the rupee declining to a lifetime low against the dollar. A trade war between the US and China weighed on global markets, with most Asian and European markets declining. Analysts said fears that new US tariffs would hit global growth was keeping investors on edge, prompting a pullback from risky assets.

The benchmark BSE Sensex fell as much as 280 points on Thursday, before stemming some losses to close at 35,038, down 179 points, or 0.5 per cent. The National Stock Exchange’s Nifty 50 declined 82 points, or 0.77 per cent, to close at 10,589. Both indices are down around two per cent this week.

The real carnage, however, was seen in the broader market. The Nifty Smallcap 100 index dropped two per cent for a consecutive day and extended its weekly loss to six per cent. The index also fell to its lowest close in 15 months. The Nifty Midcap 100 index, down 4.2 per cent this week, is at its lowest level in 10 months.

Foreign portfolio investors (FPIs) sold shares worth Rs 9.5 billion, while domestic institutions bought shares worth Rs 4.4 billion. FPIs have sold shares worth Rs 45 billion so far this month. Mutual funds (MFs) had net bought shares worth Rs 57 billion this month till June 21.

“Weak global cues and rising crude oil price continued to impact domestic market sentiment, while the rupee declined to all-time low, amid concern on inflation and the current account deficit,” said Vinod Nair, head of research, Geojit Financial Services.

Experts said besides macro factors, the move by stock exchanges to place smaller companies under additional surveillance and asset reclassification by MFs are weighing on sentiment.

The sell-off in smaller companies isn’t over, as markets adjust to the US Fed’s liquidity withdrawal, foreign investor outflow and tightening of regulatory rules, said Sanctum Wealth Management.

Experts say the expiry of derivatives contracts caused a lot of volatility in the markets. The India VIX Index, a gauge for market volatility, rose 3.24 per cent to 13.95.

On the NSE, losing stocks outnumbered gainers by three to one, with 1,355 stocks declining and 428 advancing. A total of 414 stocks hit a new one-year low. Of the 199 stocks with circuit filters, 142 hit their lower trading limit.

The biggest Sensex losers were ICICI Bank, Tata Motors, Coal India and Reliance Industries, each declining about two per cent. Gains in HDFC Bank, Infosys and Kotak Mahindra Bank prevented a sharp slide in the headline index. “The market has been volatile and roll-over activity has been low. Investors have already started taking the 2019 election into consideration,” said Rahul Mishra, assistant vice-president (derivatives), Emkay Global.