Continued tensions in West Asia and the resurgence of China are causing stock markets to fall
Equity benchmarks, already under pressure this week on concerns about a shift in money flows to China, received another jolt as escalating tensions in West Asia led investors to dump risky assets.
Foreign portfolio investors (FPIs) sold shares worth Rs 15,243 crore on Thursday, according to provisional data from the stock exchanges, marking the highest ever single-day sale.
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FPIs have sold shares worth Rs 26,879 crore in the last three days as Chinese markets recovered 30 per cent from their September lows.
The benchmark Sensex fell 1,769 points to end the session at 82,497, down 2.1 percent. The Nifty 50 index fell 547 points to end the session at 25,250, down 2.1 percent.
The Nifty posted its third biggest decline of the year, after declines on June 4 and August 5, as the shock verdict of the Lok Sabha elections and concerns over the yen’s reversal roiled trade and disappointing jobs data.
For Sensex, this was the fourth worst fall of the year.
Domestic equity benchmarks were also the worst performing global indices. India VIX, a gauge that measures market volatility, rose 10 percent to end the session at 13.2.
Thursday’s defeat wiped out investor wealth worth Rs 9.8 trillion, while India’s total market capitalization fell to Rs 465 trillion.
The Iranian missile attack on Israel has alarmed investors around the world, with concerns about Israel’s possible response. Israel bombed Beirut overnight in retaliation for the deaths of eight soldiers in a battle with Hezbollah. The latest round of tensions, pitting Israel directly against Iran, has raised concerns about its impact on oil prices and global geopolitical stability.
The region accounts for about a third of global oil supplies, and a cascading effect is expected if oil facilities or supply routes are attacked.
Crude oil rose for a fifth straight session, trading at $75.4 per barrel. In the past five sessions, Brent oil prices have risen 6 percent.
“Foreign funds may want to move to China quickly, so they need to reduce their weight in India. When flows return to emerging markets, they will replenish India or China, depending on market conditions. Our markets were overbought anyway. Rising crude oil prices are a negative for India, but we have been buying in Russia; perhaps the expectation of an RBI cut next week is now off the table,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.
After posting new highs on Thursday, the Nifty has fallen over 4 percent from its peak.
Besides global headwinds, the RBI’s monetary policy decision this month, macro data from the US that will provide clues to future US rate cuts, and quarterly results in India are also expected to shape the market trajectory.
“The results season probably won’t be great. But if the RBI cuts rates, it will be positive. The expectations will be that business will pick up, interest rates will fall, people will have more money to spend, and companies will invest,” Holland said.
Reliance Industries, which fell 3.9 per cent, was the biggest contributor to the decline in Sensex. Over the past three days, Reliance Industries has fallen 7.8 percent, with tensions in West Asia creating uncertainty for its oil refining business.
Market breadth was weak, with 2,881 stocks down and 1,107 up.
Among sectoral indices, the Nifty Realty Index fell the most at 4.4 per cent, followed by Nifty Auto and Oil & Gas, which fell almost 3 per cent each.
“I don’t foresee a big drop from now on as domestic liquidity support is intact. Domestic flows will go to bigger names, to names that haven’t been moving for a long time. Any midcap that has recovered and a price-to-earnings ratio of 30- 40x.” could see a correction,” said Amar Ambani, executive director of Yes Securities.
First publication: Oct 3, 2024 | 7:43 PM IST