Trade tensions rattle markets; equities edge lower for 6th straight session

Election result uncertainty also weighs on investor sentiment

Indian equities declined for a sixth straight session on Wednesday as renewed worries over the US-China trade war continued to spook markets across the world. 

Global markets have suffered a jolt this week after US President Donald Trump said on Sunday that the US would raise tariffs on $200 billion of Chinese goods from 10 per cent to 25 per cent. The hardline stance boosted risk-off sentiment. China’s overall trade surplus came in at $13.8 billion on Wednesday, far lower than the $35 billion economists polled by Reuters had expected.

The BSE Sensex fell 487 points, or 1.27 per cent, to 37,789.13 on Wednesday, while the Nifty50 was down 138 points, or 1.2 per cent, at 11,359.

In the last six sessions, the Sensex has slid 1,278 points, or 3.2 per cent — its longest losing streak since February. 

“Any negative development with this regard (trade negotiations) could hurt the markets materially, including India. However, India could potentially outperform in a risk-off environment,” said Jitendra Gohil, head of India Equity Research, Credit Suisse. 

The India VIX index, a gauge of market sentiment, fell marginally to 26.47, indicating nervousness among investors. The fall in the broader market was in line, with the NSE Midcap 100 and Smallcap 100 indices losing 0.98 per cent and 1.28 per cent, respectively. Reliance Industries, Tata Motors, and SBI led the fall, with losses of 3.4 per cent, 2.8 per cent, and 2.5 per cent, respectively. 

Election results, to be out on May 23, are also playing on the minds of investors. “Federal elections have historically resulted in short-term volatility. India’s equity volatility has already decoupled from emerging market (EM) and should subside post the event. After a strong catch-up in March, MSCI India has underperformed EM in April, as oil prices rose. A favourable electoral outcome could lead to a small catch-up trade in India,” said Sanjay Mookim, India equity strategist, Bank of America Merrill Lynch. 

Foreign portfolio investors (FPIs) were net sellers to the tune of Rs 701 crore, while domestic investors were net buyers worth Rs 232 crore, the provisional data provided by the stock exchanges showed.

“Foreign funds outflows may impact liquidity in the market. The ongoing result announcements are not surprising the investors whereas the expectation continues to be positive. Stability in oil prices and drop in bond yield are some positive triggers for the market, which will provide edge over other emerging markets," said Vinod Nair, head of research, Geojit Financial Services. 

Asian stocks were battered as well, with the Nikkei, Hang Seng and Shanghai Composite shedding more than 1 per cent each. European equities and US futures, too, edged lower as investors continued watching trade headlines and earnings to gauge the prospects of global growth.