US rate hike fears, Q2 results tumble equity markets (Market Review)

Heightened chances of a US rate hike and disappointing factory output data plunged the Indian equity markets during the week ended Friday.

Besides, lower earnings' guidance from IT majors, massive outflows of foreign funds and renewed fears of an early exit of Britain from the European Union (Brexit), too, dragged the key indices to end lower.

The 30-scrip sensitive index (Sensex) of the BSE receded by 387.54 points or 1.38 per cent to 27,673.60 points.

Similarly, the 51-scrip Nifty of the National Stock Exchange (NSE) edged lower by 114.2 points or 1.31 per cent to 8,583.40 points.

"Indian equity markets traded with bearish sentiments last week tracking negative global cues and profit booking at higher levels," Dhruv Desai, Director and Chief Operating Officer of Tradebulls, told IANS.

Global cues such as heightened chances of a US rate hike was one of the main themes of the week under review.

The Asian, domestic and European markets tumbled after September meeting minutes of the US Fed's Federal Open Market Committee (FOMC) revealed that most members were in favour of a rate hike in the later part of the calendar year.

"Equity bourses across the globe sharply fell after data showed that China's steel exports declined unexpectedly and the minutes of US FOMC indicated a strengthening case for a rate hike," Desai said.

A rate hike can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India, and is also expected to dent business margins as access to capital from the US will become expensive.

In addition, sentiments were dampened by disappointing factory output data.

India's factory output remained subdued for the second consecutive month -- contracting by (-)0.7 per cent in August from a decline of (-)2.49 per cent in July and a 6.3 per cent rise in the corresponding month of last year.

"On the domestic front, sentiments remained dismal on the report that industrial production contracted once again for the month of August," Desai noted.

The decline in IIP data due to lower output of manufacturing, mining and capital goods sectors' spooked investors ahead of earnings season and sparked a profit booking spree.

Further, the lower earnings' guidance from Tata Consultancy Services (TCS) and Infosys dampened sentiments.

"Markets were a bit jolted after TCS and Infosys declared their results, but did not look overly surprised as there were warnings earlier," Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services, told IANS.

However, short covering, value buying and positive inflation macro-data points supported the equity markets at lower levels.

Investors' sentiments were buoyed at the prospects of another rate cut by the Reserve Bank of India (RBI) after macro-data showed a decline in key inflation gauges.

The official data on the Wholesale Price Index (WPI) showed that India's annual wholesale inflation eased to 3.57 per cent in September from a two-year high of 3.74 per cent in August.

The Consumer Price Index (CPI) which directly influences the central bank's monetary policy decelerated. It eased to 4.31 per cent last month from a rise of 5.05 per cent in August and 4.41 per cent surge reported during the corresponding period of last year.

The September annual retail inflation came below the upper tolerance level of six per cent for the second straight month, even though it is still above the base rate of four per cent.

The government target is four per cent plus-or-minus two percentage points for the next five years.

In terms of investments, provisional figures from the stock exchanges showed that the week witnessed a massive outflow of Rs 2,405.21 crore in foreign funds.

Figures from the National Securities Depository (NSDL) disclosed that FPIs were net sellers of equities worth Rs 1,265.1 crore, or $189.54 million from October 10-14.

The rupee weakened by three paise to 66.70-71 from its previous close of 66.68 last week.

(Rohit Vaid can be contacted at rohit.v@ians.in)

--IANS

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