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Finally, equity markets are in a firm bear grip! After declining for five trading sessions, India’s benchmark Nifty 50 fell below the 18,900 mark on Thursday, marking the biggest loss since end-February. At noon, Nifty trading screens were flashing red with 48 stocks declining versus only 2 that advanced. All indices were down.
Indeed, there is no new reason for the continuous sell-off in equities in the past few trading sessions. Perhaps, investors and market veterans are taking cognizance of the fact that the external political and macroeconomic milieu is not conducive to growth.
Much of this worry is due to the prolonged Israel-Hamas war that is threatening to spread to include other Middle East countries. The geopolitical uncertainty, along with lower production and higher consumption in the coming winter months, is likely to keep crude prices high -- some say above $100 per barrel. This is bad news for India, which imports over three quarters of its needs. High crude prices could raise the fiscal deficit and weigh down on the currency.
Besides, the story of elevated yields on US-treasury bills and bonds is known. It underscores the US Fed’s statement of “higher for longer” interest rates, in order to rein in inflation. So, high rates combined with a strong US dollar and a high price-to-earnings multiple would move flows out of Indian equities. Given that interest rates are not going to shift lower for the next six to nine months, funds may move to relatively stable fixed income and gold.
Thursday is the settlement date for October’s F&O trades, which also accelerated the sell-off in equities. Market veterans also reckon that investors may have decided to take some profits off the table, given that some key states in the country are heading for elections soon. After all, the mid- and small-cap indices were in an overdrive for several months, with investors making a killing. Visibly, there has been profit-booking in this segment of the market. Besides, initial Q2 FY2024 results especially from the IT companies were dampeners too.
That said, there is little doubt that India is in a sweet spot. Amid rising external risks, India’s buoyancy in consumption in spite of inflation and high rates can cascade down to more broad-based growth in the next few years.
With the Nifty and the BSE Sensex losing about 5 per cent in the past six sessions, the price-to-earnings multiples too have come off sharply and are closer to the long-term average of 18 times one-year forward earnings. Any positive news signalling peace talks between warring Israel and Hamas or on softening inflation could see money coming back into Indian equities.
Investing insights from our research team
Tech Mahindra Q2 FY24: Weakness continues, hints at a promising FY25
Axis Bank Q2 FY24 – Decent quarter amid deposit challenges
Voltas Q2: Concerns on AC market share linger
Nestle India: Strategy in place for sustained growth
Sona BLW: If you want to play the EV market, look no further
Jubilant FoodWorks: Soft quarter; performance expected to improve
What else are we reading?
India’s festive demand a sign of increasing consumer confidence
Start-up Street: Does it make sense to be a zero-equity co-founder?
Axis Bank’s retail gameplan would soon need a check on unsecured book
Chart of the Day: Rising government thrust to propel aviation sector
Dabur faces every healthcare company’s worst nightmare
Voltas: Uncertain times weigh down valuations
Sharda Cropchem’s weak result has a cautionary message for UPL investors
Corporate bonds: Record yields are putting the juice back into junk (republished from the FT)
In a reformed Monetary Policy Committee, members must be at odds with each other
Mallikarjun Kharge’s steadying hand ends Congress’s post-2019 disarray
Chhattisgarh Elections 2023: All eyes on Congress gambit of dropping 22 sitting MLAs
China is starting to get serious about stimulus
Biden is right in urging Israel to delay Gaza invasion
Why online gaming companies are engulfed by a sinking feeling despite the Cricket World Cup fever
Tech and Startups
Exclusive: SoftBank takes Indian founders on AI tour in Silicon Valley
Technical Picks: AU Bank, Silver mini, Maruti Suzuki, Aurobindo Pharma and Coal India (These are published every trading day before markets open and can be read on the app).
Vatsala Kamat Moneycontrol Pro
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