Sensex drops to two-month low

Investors sell ahead of second quarter earnings, amid weak global cues

Investors turned cautious on Tuesday, ahead of the second quarter results announcements, amid weak global markets.

The Indian market resumed trading after a five-day break and fell for a second day, with the benchmark BSE Sensex ending at a two-month low. The 30-share index closed at 26,271, down 1.1 per cent or 296 points. This was led by declines in metal stocks, which fell after a World Bank report projected slower growth in the Chinese economy.

The National Stock Exchange’s Nifty ended at 7,852, down 1.2 per cent or 93 points.

Hindalco and Sesa Sterlite were among the biggest losers among index stocks, declining 4.3 per cent each.

Health care stocks Cipla, Dr Reddy’s and Sun Pharma also declined by a little over three per cent each as investors booked profits ahead of the earnings season.

“People are not building any large expectations this results season. Most sectors have run up significantly and are over-priced. So, investors are booking profits while they can, before the earnings season starts,” said Daljeet Singh Kohli, head of research, IndiaNivesh Securities.

Among sectoral indices, the highest decline was seen in the case of metal sector stocks. These fell 2.7 per cent on worries surrounding China’s economic growth. China is the world’s largest consumer of metals.

Shares of capital goods and the consumer durables sector saw declines of about 1.7 per cent each, followed by the realty sector which was down 1.3 per cent.

Major global indices in Europe and Asia also declined on Tuesday. Hong Kong’s Hang Seng index gained about 0.5 per cent as protestors agreed to open negotiations with the government, ending days of protest for higher democracy in the region.

Experts believe the nervousness in the Indian markets is likely to continue as investors come to terms with the mismatch between expectations and share prices, which has driven the rally so far.

“The global correction that is happening is finally catching up with Indian markets. There are worries regarding global liquidity, with the US stimulus programme ending and talks of an interest rate hike,” said Hemant Kanawala, head of equity, Kotak Life Insurance.

On Tuesday, foreign institutional investors were net sellers at Rs 332 crore. Domestic institutions were net buyers of equities for Rs 327 crore.

Market analysts believe foreign flows into emerging markets like India could weaken, depending on the US Federal Reserve’s stance on an interest rate increase and the timing.

“Ultra-easy Fed policy has been a key source of support for the global economy and investment markets. Investors are naturally concerned about what will happen when this ends, with the Fed’s third round of quantitative easing set to end later this month and the Fed talking about raising rates next year,” said Shane Oliver, head of investment strategy and chief economist, AMP Capital.