Sensex back at October 2014 level

Benchmark indices slide 5% in 5 sessions; markets expected to remain volatile for over monsoon, US Fed worry and domestic recovery worries

The Indian markets continued their downward slope on Monday, amid sustained selling by foreign investors on concern around a weak monsoon, to end at levels previously seen in 2014.

The BSE exchange’s benchmark Sensex fell another 254 points or 0.9 per cent to 26,523.09, lowest  since October 20, 2014. The National Stock Exchange’s Nifty declined 70.55 points or 0.9 per cent to 8,044.15, lowest since December 17, 2014.

Also, technical analysts say the benchmark indices are precariously poised and could slide further. “If the Nifty closes below 8,000 (the 2015 low on an intra-day basis, hit on May 7), there will be more pain. Most counters are showing weakness on the technical charts. The market holding at current levels will be the key. If it fails to sustain, the Nifty can first slip to 7,700 and then even 7,500 can be seen on the index,” said Yogesh Radke, head of quantitative research, Edelweiss Securities.

According to Bloomberg, the Sensex’s 50-day moving average (DMA) fell below the 200-DMA on Monday, for the first time in 22 months. The formation, known as a ‘death cross’ in trade parlance, earlier occurred on August 16, 2013, and led to a 9.8 per cent fall in the Sensex in less than two weeks, said a Bloomberg report.

The Sensex has fallen 1,300 points or 4.7 per cent, after continuous declines in five sessions. The Nifty has ended down in six consecutive trading sessions, with several blue-chip stocks such as Tata Motors and ICICI Bank dropping nearly 20 per cent from their year’s highs.

The market has declined on every single session since the Reserve Bank of India’s review of monetary policy last Tuesday, where the central bank eased the key policy rate by 25 basis points.  It, however, stated it would track the monsoon’s progress before deciding on further rate cuts. The market is spooked by the weaker than average projection for this year’s monsoon, which could result in delay in rate easing.

Foreign institutional investors (FIIs) on Monday sold shares worth around Rs 750 crore, according to provisional exchange data. FIIs have been net sellers on most occasions in the past week and have pulled out a about Rs 4,500 crore from Indian stocks so far in June. “The selling got triggered after RBI’s recent credit policy,” said Sachin Shah, fund manager & head, Emkay PMS.

Beside domestic worries, foreign investors have also been pulling out money from emerging markets like India on worry that the US Federal Reserve (Fed) might increase rates earlier than expected. Some investors had also turned cautious ahead of index provider MSCI’s country classification review, due on Tuesday.

“It remains to be seen whether the MSCI includes China-A shares in its global indices. This would trigger some amount of outflows from passive funds investing in India,” said Radke.

The Sensex and the Nifty are down nearly 11 per cent from 2015 highs. Most foreign brokerages have started scaling back their year-end targets for the Indian market. Last week, CLSA cut its Sensex target by three per cent. Earlier, Citibank, UBS and HSBC had also reduced their targets for the Indian stock markets.

“We believe the market will remain volatile over the next few months, as investors continue to await tangible data on macroeconomic/corporate recovery. In addition, the market direction will also be determined by the ebb and flow of macro data from the US, which will, in turn, impact the market’s assessment of the onset, pace and quantum of Fed lift-off,” said Deutsche Bank in a client note last week.