 "Five reasons why Sensex slumped over 400 points today")
The market extended losses for the second straight session to end over five-month low on worries about capital outflows as US bond yields surged and the dollar strengthened, and as heavyweight Tata Motors, mired in a corporate power struggle, plunged after reporting weak earnings.
The S&P BSE Sensex slumped as much as 565 points to 26253.63, while the broader Nifty50 settled the day just a tad above 8,100 in intraday deals.
"Sharp strengthening in US dollar suggests a revival of interest in dollar denominated assets, following Donald Trump’s electoral victory. The pull out by FIIs to the tune of over 7,000 crores in the last few days have exacerbated the volatility, and Indian markets are less likely to receive much respite, as Parliament session is likely to see a rocky start tomorrow," said Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services.
"Sharp strengthening in US dollar suggests a revival of interest in dollar denominated assets, following Donald Trump’s electoral victory. The pull out by FIIs to the tune of over 7,000 crores in the last few days have exacerbated the volatility, and Indian markets are less likely to receive much respite, as Parliament session is likely to see a rocky start tomorrow," said Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services.
Below are five reasons that pulled the benchmark indices down in today's trade:
1) Macro data
Country’s factory output grew 0.7% in September, recovering only marginally from the previous month’s fall of (-) 0.7%, data released on Friday showed. Experts believe thanks to festive demand, the October output figures, to be released next month, could come out better, but are unlikely to see significant pick up in the coming months hit by an unexpected ban on Rs 500 and Rs 1000 currency notes.
“While a gradual improvement in consumer sector production can be expected on the back of pay commission payouts and monsoon-led rural demand, we need to be cautious on the degree of demand slowdown due to the recent demonetisation measures in a significantly high cash economy,” said Suvodeep Rakshit, Economist, Kotak Institutional Equities.
Meanwhile, Wholesale Price Index (WPI) inflation figure fell to 3.39% in October from 3.57% in the previous month. Investors now await retail inflation data to be released later in the day.
2) Development on demonetisation
The recent move by government to demonetize the Rs 500 and Rs 1,000 currency notes continued to roil markets with stocks of realty, consumer durables, jewellery and non-banking finance companies extending falls in today's session. The Realty index and Consumer Durables index was down 5% and 3%, respectively. NBFC companies such as Manappuram Finance, Can Fin Homes, Shriram City Union Finance, Bharat Financial Inclusion and Muthoot Finance, among others slumped 5% to 20% on the BSE.
"As the demonetisation drive entered the second week, the ripple effect of cash squeeze continued across sectors like realty, jewellery etc. Not all banks, which stands to gain from the deposit boom, could sustain last week’s surge as the near term prospects of some of the banks continued to be clouded by asset quality worries," said James of Geojit BNP Paribas.
"As the demonetisation drive entered the second week, the ripple effect of cash squeeze continued across sectors like realty, jewellery etc. Not all banks, which stands to gain from the deposit boom, could sustain last week’s surge as the near term prospects of some of the banks continued to be clouded by asset quality worries," said James of Geojit BNP Paribas.
3) Rupee trajectory and FII outflows
The rupee on Tuesday extended fall for the third consecutive session to hit over four-and-a-half-month low against the US dollar as foreign institutional investors (FIIs) continued to sell in the equity markets. From November 7-11, FIIs have sold equities worth Rs 1,670.71 crore, figures from the National Securities Depository (NSDL) suggested.
4) Earnings disappointment
Tata Group stocks pulled the headline indices lower after Tata Motors and Tata Steel reported Q2 earnings below Street expectations. Tata Motors fell 9 per cent after its standalone net loss widened to Rs 631 crore in the September quarter, compared to Rs 289 crore in the year-ago period.
Tata Steel posted a net loss of Rs 49.5 crore in Q2 as compared to net profit of Rs 5,609 crore in the year-ago period. The stock closed 7% down on the BSE.
Tata Motors and Tata Steel were the top two Sensex losers.
5) Global cues
Market took cues from negative trend seen in Asian markets after the US dollar rose near a 14-year high and treasury yields extended their gains as investors braced for stronger inflation in the United States amid expectations of expansionary fiscal policies under Donald Trump's presidency. A rise in inflation may nudge US Federal Reserve to go for a rate hike in its December policy meet. with traders pricing in an 81 percent chance,
According to CME Group's FedWatch tool, traders are pricing in an 81% chance of Fed rate hike in December. Fed Vice Chairman Stanley Fischer, in fact, last week said economic growth prospects appear strong enough for a gradual hike in interest rates.
CME's Fedwatch tool showed traders are pricing in an 85.8 per cent chance of Fed hiking interest rate in December. Money markets are expecting a 23.2 per cent chance of another Fed rate hike by March 2017.
