The benchmark indices fell for a fourth straight day on Friday, on concerns over high oil prices and weakness in the rupee. The Sensex declined 0.86 per cent, or 301 points to 34,848.3, while the Nifty declined 86.3 points, or 0.81 per cent to 10,596.4. Both the indices ended the week with a decline of nearly two per cent — the most in two months. The weakness in the market comes amid Brent crude oil prices climbing to $80 a barrel and the rupee declining to 68 against the dollar. Banking stocks led the fall on Friday as investors feared the macro headwind could prompt the Reserve Bank of India (RBI) to raise interest rates.
Shares of ICICI Bank fell 3.2 per cent, State Bank of India declined 1.7 per cent and HDFC Bank dipped nearly a per cent. Among Sensex components, Larsen and Toubro (L&T) fell the most at 3.54 per cent. Shares of Tata Steel and Tata Motors declined over three per cent each. Investors feared rising oil prices would hurt economic growth and hurt corporate margins. In the past week, the rupee slid over a per cent against the dollar, while oil prices firmed up another three per cent.
“A thick headwind is present for the Indian economy which is likely to keep the recent economic recovery under check,” said Sahil Kapoor, chief market strategist, Edelweiss, in a note. “Near-term stress may reappear on stock indices and sectors. 2018 could remain a year of earnings recovery but de-rating in price-to-earnings.”
The weakening in the currency has triggered a sharp outflow from overseas investors. In the past four trading sessions, foreign portfolio investors (FPIs) have pulled out nearly ~20 billion from the domestic market. Buying by domestic investors, particularly mutual funds, has provided some counter balance.
After dropping nearly 10 per cent from their 2018 highs in January, the Indian markets rebounded in April with the benchmark indices gaining nearly seven per cent. The rebound in the Indian market has once again widened India’s valuation premium to regional peers such as Indonesia and the Philippines.
“With continued downgrades to consensus earnings and weak return on equity, India’s premium (on our valuation model) has now risen to 64 per cent — close to its highest ever,” said Credit Suisse in a note, where it reiterated its ‘underweight’ stance on India in the Asia-Pacific region. On a year-to-date basis, the Sensex has gained 2.3 per cent.