Markets tumble most in 3 weeks on global growth concerns, ITC Q3 earnings

The benchmark indices posted their biggest decline in three weeks as concerns surrounding global growth dampened investor sentiment towards risky assets. In addition, earnings disappointment by ITC weighed on market performance.
 
The Sensex on Wednesday fell 336 points or 0.92 per cent to end at 36,108, while the Nifty fell 0.84 per cent or 91 points to close at 10,832. Both indices saw the biggest single-day drop since January 3. Shares of FMCG major ITC declined 4.2 per cent and accounted for nearly a third of Sensex and Nifty losses.
 
Overseas investors have been pulling out from riskier assets on account of deteriorating global growth outlook amid the US-China trade tussle.
 
Earlier this week, the International Monetary Fund (IMF) had cut its forecast for global growth in 2019. The IMF expects 3.5 per cent growth in 2019, down 0.2 percentage points from its previous estimates in October. Trade tensions between China and the US, and weakness in the German auto industry, are among the reasons for the lower forecast. Investors have also been concerned over the economic slowdown in China — the global engine of growth. The Chinese economy grew 6.6 per cent in 2018, the slowest pace since 1990.
 
Foreign portfolio investors (FPIs) sold shares worth Rs 776 crore, while domestic investors provided buying support to the tune of Rs 584 crore. So far this year, FPIs have pulled out more than $500 million from the domestic equity market.
 
“I think earnings are going to be cut across the US, China, Europe and the UK. A lot of downgrades are coming, which will affect global equity markets. The next three months will be hugely volatile because of global data,” said Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies.
 
The markets fluctuated between gains and losses for majority of the day. However, they saw sharp correction barely an hour before close of trade after announcement of ITC’s result.

 
“Selling intensified in the afternoon session even as mild weakness in global equity markets reflected risk aversion on the part of investors, in the face of the US-China standoff and its impact on global growth,” said Deepak Jasani, head of retail research at HDFC Securities. He said the Nifty could see a steeper fall if the immediate support of 10,780-10,800 was broken. The company’s profits and sales were in line with estimates. However, its margin dipped to 38.5 per cent against 39.8 per cent a year ago.
 
Barring two, all the 19 sectoral indices of the BSE ended with losses, led by the FMCG index. Besides global growth, investors were also concerned about fiscal prudence taking a back seat ahead of the general elections. Further, the latest downgrades of special purpose vehicles (SPVs) owned by IL&FS have stoked fresh liquidity concerns. 
 

“People are nervous about IL&FS subsidiaries being downgraded, which has put pressure on debt funds that had exposure to SPV companies associated with IL&FS. There is a fear among investors that the liquidity crunch may return. There are a host of SPVs that are related; if one gets downgraded others could follow suit and all could take a beating,” said Siddhartha Rastogi, managing director of Ambit Asset Management.