Markets near 4-month low; Sensex, Nifty have dropped 9% from all-time highs

The Sensex and the Nifty have come off by over 9% from their all-time highs reached end-January

Global and local headwinds continued to weigh on the equities market on Monday, with the benchmark Sensex and Nifty indices closing at their lowest levels since December 6. 

Shares of metal and oil companies took another bout of pounding amid fears of a global trade war. Recent political developments pointing towards a weakening of the ruling Bharatiya Janata Party (BJP), such as the defeat in by-polls and the exit of ally Telugu Desam Party (TDP) from the ruling alliance, kept investors on tenterhooks.  Also, economic data, including the widening of current account deficit further weakened the sentiment.

The BSE Sensex fell 0.8 per cent, or 253 points to close at 32,923.12, while the Nifty 50 index fell 1 per cent, or 101 points to 10,094. 

After posting its third straight week of declines, Indian markets made a positive start with the Sensex climbing to 33,276. However, the gains were short-lived as investors sold into the rally.

"The BJP's shock defeat in the Uttar Pradesh by-polls and the likely impact on its tally in the 2019 general elections in the state have the markets concerned. Indian markets now face two challenges - the disruptive fallout of a global trade war and domestic political issues," said Ajay Bodke, chief portfolio manager, Prabhudas Lilladher.

The Sensex and the Nifty have come off by over 9 per cent from their all-time highs reached end-January.

Asian and European markets remained weak, while the US futures market indicated a weak opening on Wall Street. The global economy has seen an uptick, but investors fear a disruption in global trade due to any adverse policy move by the US.  Investor focus also shifted to the two-day monetary policy meeting of the US Federal Reserve. The central bank on Thursday is likely to raise rates by 25 basis points and provide guidance on the number of rate hikes expected this year.

"The market continued face volatility ahead of the US Fed meet. Bond yield remained at elevated levels and concern over trade tensions is influencing investors to book profit. Weakening of the rupee due to the widening of the current account deficit has led investors to further caution," said Vinod Nair, head of research, Geojit Financial Services.

Shares of Tata Steel dropped 4.24 per cent, the most among Sensex components. All the 19 sectoral indices of the BSE ended with losses, with telecom, realty and metal indices declining the most.

Foreign institutional investors (FIIs) bought shares worth Rs 2.9 billion, while domestic investors were net sellers to the tune of Rs 1.9 billion. Interestingly, FIIs had been strong buyers in the last few trading sessions, while domestic investors have been seen taking money off the table. 

Mutual funds (MFs) have been net sellers on most occasions in the last two weeks. Experts say the selling could be on account of tax-related portfolio churning ahead of the end of the financial year.