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The markets recorded their steepest fall since September 22, 2011, after comments by the US Federal Reserve (US Fed) that it would start winding down its monetary stimulus measures sooner than expected. Also, weak China manufacturing data led to a sell-off in global equities today. The S&P BSE Sensex slipped 2.74 per cent, or 526 points, to end the day at 18,719 points.
The carnage saw stocks from the metals, real estate and infrastructure-related companies tumble like ninepins. While the S&P BSE Metal index and S&P BSE Realty index lost five per cent each, the S&P BSE Bankex ended four per cent lower. According to BSE’s provisional data, foreign institutional investors (FIIs) sold shares (net) worth Rs 2,094 crore today. Foreign investors have made a net outflow of Rs 6,325 crore in the last nine trading sessions.
“Resurfacing of concerns on widening trade and current account deficits has led to a sharp fall in the rupee. The US economy is on the firmest footing among the developed markets. These things had rekindled concerns regarding winding down of the bond buying programme by the US Fed sooner rather than later and thereby potentially impacting flows to emerging markets. We were always vulnerable to a shock from a change in global risk appetite,” said Ajay Bodke, head – investment strategy & advisory for institutional research, Prabhudas Lilladher.
Realty stocks crack
Meanwhile, 67 stocks from the BSE-500 index hit a 52-week low today, including Ranbaxy Laboratories, HPCL, Indian Oil, DLF, BHEL, Petronet LNG and Bank of Baroda.
Among individual stocks, Jindal Steel and Power, Tata Steel and Hindalco Industries from the metals pack lost six per cent each, as the flash estimate of HSBC China Purchasing Manager's Index (PMI) fell to a nine-month low of 48.3 in June. The index was at the weakest level since September. China is the world's largest consumer of copper and aluminium.
Indiabulls Real Estate, Jaiprakash Associates, DLF, IVRCL and Reliance Infrastructure from the realty and infrastructure sectors and Punjab National Bank, Kotak Mahindra Bank and HDFC Bank from banking cracked in the range of 4-10 per cent on concerns that the rising rupee would force the Reserve Bank of India (RBI) to defer reduction in key policy rates. On Monday, RBI had kept key policy rates unchanged in view of high food inflation, the declining value of rupee and global uncertainty. Most analysts believe if the rupee continues to decline against the dollar, a further rate cut in July looks far-fetched.
Outlook
Outlook for the currency is expected to remain weak till structural measures are taken to improve the current account deficit (CAD) and improvement of sentiment among foreign investors, analysts say. “The ballooning CAD and cloudy outlook on reforms have added to the local currency’s woes,” notes Kuntal Sur, director, KPMG in India.
However, Rahul Arora, chief executive officer at Nirmal Bang Institutional Equities, believes there will be no tapering of quantitative easing (QE) for 2014 and global liquidity will continue to aid equity markets in 2013 and 2014, with India likely to be a beneficiary.
“The market at 5,700 (Nifty) provides a good entry zone for long-term investors. Even from a valuation perspective, the market is trading at 12.7x FY15 earnings (these are benchmarked against Bloomberg consensus earnings, which analysts expected to get downgraded by six to seven per cent),” he adds.
“Chinese liquidity seems to be getting tight and the latest PMI data was also not encouraging. All this has impacted the metals pack. Given the side in the rupee, RBI might not be in a position to cut rates immediately. So, in a nutshell, highly leveraged sectors got impacted in trade as the developments push back the rate cut possibility,” said Lalit Nambiar, senior vice-president and head research, UTI AMC.
“Overall, this is not a bad time to enter the markets from a 6 – 12 month perspective. Among the lot, I would rather play safe and invest in the banking space,” he adds.
“SBI, HDFC, HDFC Bank, YES Bank and ICICI Bank have good fundamentals and can be bought from a medium-to-long term perspective,” suggests Vivek Mahajan, head of research, Aditya Money in a report dated 20 June.
