Sensex, Nifty tumble as Kashmir tension spooks investors' interest

Scrapping of Kashmir autonomy, China yuan devaluation trigger fresh risk-off bets

Stocks tumbled on Monday with the government’s move to scrap Kashmir’s autonomy and China’s yuan devaluation triggering further panic among investors. The benchmark Sensex plunged as much as 700 points intraday before recouping some of the losses to end at 36,700, down 418 points, or 1.13 per cent. The Nifty50 index declined 135 points, or 1.23 per cent, to end at 10,863 — the lowest close since February 28.
 
Most global markets fell, while the US futures pointed to a sharply lower opening on the Wall Street amid rising tensions between the US and China. The Chinese yuan fell beyond 7 per dollar for the first time since 2008, amid speculation that Beijing was deliberately allowing the currency to depreciate to counter US’ latest tariff threat. Most emerging market currencies fell along with the yuan, triggering sell-off by overseas investors.
 
On Monday, foreign portfolio investors (FPIs) sold shares worth Rs 2,016 crore, while domestic institutional investors bought shares worth Rs 1,871 crore.
 
“Depreciation in the yuan was on predictable lines after the US increased tariffs on Chinese goods once again. To maintain India’s competitive position in exports, the Indian rupee has to depreciate, which it did today (Monday). In any case, the rupee is seen to have not depreciated enough to maintain our external trade account in good shape,” said U R Bhat, director, Dalton Capital India.
 
Information technology stocks, which derive most of their revenues in US dollars, rallied. Meanwhile, banking, power, and capital goods stocks stumbled on worries over economic growth.
 
The central government’s move to revoke the special status of Jammu & Kashmir has led to fear among investors about the deteriorating security situation in the region and priorities of the government.

 
“The Kashmir situation could lead to crowding-out of the expenditure. So, private sector capital expenditure may not increase the way it was expected to earlier,” said Abhimanyu Sofat, head of research, IIFL Securities.
 
The Kashmir move comes at a time when the economy and the markets have hit a rough patch. In the past one month, the benchmark indices have declined nearly 8 per cent amid continuous selling by overseas investors. In the past one month, FPIs have pulled out nearly Rs 18,000 crore from the equities market, spooked by an increase in tax surcharge announced in the Budget.
 
Market players are hoping that the government will soon take steps to assuage the concerns of investors.
 
“We still do not have a real response from the government on the problems that have surfaced after the Budget — whether it is on the FPI surcharge issue, the shadow banking crisis or the urgent need to revive investment. The new law regarding corporate social responsibility compliance has further dampened sentiment among corporate chieftains. Corporate earnings are nowhere near market expectations, and the gaps in credit delivery continue. The slowdown on account of the non-banking financial company crisis cannot be wished away, and the government and the Reserve Bank of India need to be more proactive to solve this crisis,” said Bhat. 

The market breadth was weak on Monday with nearly three stocks declining for every one advancing on the BSE. Only nine out of the 31 Sensex stocks ended with gains. Reliance Industries, which fell 3.5 per cent and HDFC Bank, which declined 1.6 per cent, were the biggest drag on the index. Meanwhile, HDFC and Tata Consultancy Services gained 1.4 per cent and 1.9 per cent, respectively, helping offset some of the losses.