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Shares plunged for a second day on Wednesday as worries over a delayed monsoon and the diminished possibility of further bank rate cuts continued to spook the markets.
Sentiment has been subdued after prediction of a weaker monsoon, possibly a drought, made the Reserve Bank of India (RBI) cautious on further rate cuts. The BSE exchange’s benchmark Sensex fell 351 points or 1.3 per cent on Wednesday, bringing its two-day decline to about 1,000 points, closing at 26,837. The National Stock Exchange’s Nifty declined by 101 points to end the day at 8,135.
The markets had also dropped 2.5 per cent on Tuesday. More worrying was the palpable weakness in the broader market, with several stocks at 52-week lows or record lows.
RBI cut its prime lending rate by 25 basis points on Tuesday, most of which was already factored in by the market.
“The quantum of the fall has surprised many in the market. Sentiment remains shaky, as people are still worried that nothing has changed on the ground. Selling pressure will remain as long as the overhang of weak monsoon forecasts, no rate cut possibilities and poor corporate earnings growth remains,” said Mayuresh Joshi, head (institutional equities), Angel Broking.
Several brokerages, foreign and domestic, have started to downgrade their Sensex and Nifty estimates on expectations of a weaker monsoon.
Mid-cap and small-cap stocks were the worst affected in the markets, with the CNX Midcap losing 1.5 per cent and the CNX Smallcap index slipping three per cent. Property developer Unitech was the worst performer of the day, down 36 per cent, followed by JP Associates at 20 per cent.
Analysts said mid-cap and small-cap stocks had been running up in hopes of an interest rate easing cycle, one RBI had embarked upon since January. Between then and May, the BSE Midcap index was up 4.4 per cent; the past month saw it move up 3.8 per cent. The BSE Smallcap index has risen by 1.7 per cent; it was up 3.9 per cent in May. However, with RBI now signalling discomfort about cutting interest rates on concerns over higher inflation brought on by the probability of a weaker monsoon, these stocks are experiencing the brunt of selling pressure.
“What we are seeing in these segments is panic selling by investors because there is no clarity on further interest rate cuts at this point. That could put more pressure on the balance sheets of these companies, impacting their earnings,” said Dipen Shah, senior vice-president (research), Kotak Securities.
Corporate earnings, so far, have disappointed the markets but some believe things could improve in the second half of FY15. The fall in mid-cap and small-cap stocks were also the direct result of a lot of margin calls getting triggered, experts said.
Among sectoral indices, the CNX Realty continued to be the worst performer for a second day, falling nearly six per cent and bringing the total decline in two days to about 10 per cent. The decline in the sector was led by Unitech, followed by Indiabulls Real Estate which was down 8.5 per cent, and HDIL which was down 6.8 per cent.
Foreign portfolio investors were net sellers at Rs 727 crore on Wednesday, continuing their trend of being negative on Indian equities. They had sold shares worth nearly Rs 600 crore on Tuesday. Domestic institutions, on the other hand, are providing support to the market by being net buyers. They net-bought shares worth Rs 412 crore.
Three of every four stocks in the BSE declined. On the NSE, five of six stocks had their share prices slip. In all, 324 stocks on the BSE hit a 52-week low and 223 on the NSE.
As many as 60 stocks hit their all-time low and 432 hit the lower circuit on the BSE. On the NSE, 49 stocks touched their all-time low, while 118 stocks hit the lower circuit.
