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'Thursday’s fall was more pronounced as the banking stocks, which have a huge weightage in the indices, saw sharp selling.'
Trading in Samvat 2074 on Thursday got off to a rocky start, with the benchmark indices ending more than half a percent lower and the gauge for banking stocks dropping 1.25%. The BSE Sensex on Thursday fell 194.4 points, or 0.6% to close at 32,390, the Nifty 50 index fell 64.3, or 0.63% to close at 10,147.
The Indian markets were open for an hour-long Muhurat trading to mark the start of the new Hindu calendar year -- Samvat 2074. This was worst Muhurat day performance since 2007, when markets had declined 0.8%.
The fall in the market was on account of a global sell-off which saw the Hong Kong market tumble the most this year and the European equities fall the most in two months. Market players said some domestic investors also resorted to profit-booking after a healthy 18% rally in the just-concluded Samvat 2073.
“The markets have been weak in the past few sessions. However, gains in certain index heavyweights, like Reliance Industries and HDFC Bank, prevented a big fall at the index level. Thursday’s fall was more pronounced as the banking stocks, which have a huge weightage in the indices, saw sharp selling,” said Ambareesh Baliga, a senior research analyst.
The BSE Bankex fell 1.3%, with ICICI Bank, Kotak Mahindra Bank and HDFC Bank declining 2%, 1.6% and one% respectively. These three stocks accounted for half of the fall in the benchmark Sensex. Globally, Hong Kong’s Hang Seng Index fell 1.9%, while China market too ended weak. Most European markets too were down 0.6%, while the US market had opened 0.3% lower.
Experts said the political crisis in Spain, earnings disappointment in Europe and the Hong Kong sell-off impacted global investor sentiment. Oil prices fell for the first time in five days, while safe-haven assets such as Swiss franc, Japanese yen and gold rallied.
Thursday’s weakness notwithstanding, most market players are hopeful that the Indian markets will once again deliver double-digit returns over the next one year.
“Next Samvat, the market returns could be even better. We expect double-digit earnings growth from this year onwards. The earnings momentum will sustain for the over the next three to five years, which will ensure huge upside in stock prices,” said Deven Choksey, MD, KR Choksey Investment Managers.
The rally in the Indian market seen over the past one year has been despite a lack of corporate earnings growth. This has increased the valuations for the Indian market, with the benchmark Nifty currently trading close to 20 times its one-year forward earnings as against long-term average of 16 times.
Market players the valuations will normalise as earnings catch up. Economic growth had slowed down in the last few quarters on account of measures like demonetisation and Goods and Services Tax(GST). Analysts expect the impact of these measures fade out soon and corporate earnings to grow rapidly on a last year’s lower base.
However, geo-political factors remain a key headwind for the Indian equities. The tensions between the US and North Korea has been flaring up for the last six months with North Korea now threatening a nuclear attack on the US. Market participants say this is a key headwind not just for Indian equities but for global markets. Last time when the tensions had flared up in August, the street saw sharp selling by foreign funds.
“There are no significant headwinds domestically. However, geopolitical tensions could weigh on market performance. Despite markets hovering around lifetime highs, people are still nervous, signalling that there is not much froth and the market still has a lot of potential. Economy and earnings should recover over the next six months,” said Ramesh Damani, member, BSE.
