Equity markets plunged sharply with benchmark indices losing almost 1.50% each, amid heavy selling in auto and financial stocks. BSE Sensex closed 560 points down at 38,337 against the last close of 38,897.46. NSE Nifty50 ended at 11,419, declining by 177 points against the last close of 11,474.
Markets tanked sharply and lost over a percent, in extension to Thursday's fall, said Ajit Mishra Vice President-Research, Religare Broking, adding that most sectoral indices traded in line with the benchmark index and ended deep in red territory.
Disappointing financial results, coupled with the government's refusal to tweak the surcharge on foreign investors, amid reports of slowing economic growth dented market sentiment and pushed foreign investors away from Indian markets.
As per the buzz on Dalal Street, these are the five key factors that affected market sentiment:
1. Unabated FPI outflow
Since the budget announcement, there has been a continuous selloff by the foreign portfolio investors, who have cut exposure to domestic stocks amid fear of a higher tax outgo. The foreign investors also weighed FM Nirmala Sitharaman comment that overseas investors functioning as trusts in India will have to pay the tax surcharge proposed in the Union Budget. Sitharaman on Thursday ruled out any relaxation for foreign portfolio investors (FPI),
Additionally, any relaxation for foreign portfolio investors (FPI) was ruled out by FM Nirmala Sitharaman on Thursday after she said that overseas investors functioning as trusts in India will have to pay the tax surcharge proposed in the Union Budget.
"FPIs should consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge announced in Budget 2019," quoted Sitharaman as a reply to the debate held on the Finance Bill in Lok Sabha.
Following this, the net investment of equity and debt segment reported the worst sell-off for the month registered by Foreign portfolio investment (FPIs), who remained bearish with net selling of Rs 1,404.86 crore from Indian equities Thursday, data available with the exchanges showed.
"Market slid as there was sharp sell-off by foreign funds due to Government's reluctance to tweak FPIs income tax surcharge, and the deficiency in monsoon rain, which impacted the risk sentiment," commented, Vinod Nair, Head of Research, Geojit Financial Services Ltd .
"Foreign funds are on a risk-off mode, while domestic mutual funds are providing marginal support in the market," he added.
Post the Union Budget, FPIs have flushed out Rs 5,673 crore from domestic equities, being net-sellers on 11 out of the 13 trading sessions, according to a Business Standard report.
2. Earnings season
Amid key heavyweights announcing their first-quarterly corporate earnings, financial results have become the principal driver for the Indian equity market in June. Corporate earnings for the June quarter have failed to impress investors.
The corporate earnings trend has been mixed so far, with major index-heavyweights submitting their first quarterly earnings report for the FY 19-20 below expectations, followed by brokerage firms revising their recommendation and cutting targets.
3. Sectorally Stressed
While the broader markets remained weak, individual sector indices performed on a bearish note too, pressured by major selling pressured booked in Auto, Financials and Media stocks.
The auto sector is expected to be volatile on account of the shift to BS-VI emission norms in the near term, while financial stress in the aviation sector is known for quite some time now. Disinvestment rumors on many state-owned enterprises have kept the investor's sentiments down too.
Likewise, a broader look into the recent earnings reports have suggested that lenders are unable to improve NPAs or their asset quality, while cement industry has witnessed weak off-take in the quarter due to the slow pace of construction activity. Private sector bank stocks witnessed steep selling, while NBFCs stocks have tanked as well.
Amid muted corporate earnings numbers and slowdown in the Indian economy, any growth momentum in the sector indices is least expected.
4. Economic Slowdown concern
The Asian Development Bank (ADB) has lowered India's GDP growth forecast for the ongoing financial year to 7 per cent over concerns about a shortfall in fiscal outturn in 2018. Despite the decline in the forecast, India remains the fastest-growing country in the robust South Asia region, the development bank stated.
"Additionally, the downward revision in India's growth to 7% by ADB and lackluster earnings from domestic corporates added anxiety over premium valuation," quoted Vinod Nair, Head of Research, Geojit Financial Services Ltd
" Indian capital markets are in capitulation mode, as there has been clear dearth of good news. The continuous corporate defaults, high-tax regime, weak earnings season and fragile economy are not helping the already-delicate sentiment," said Jagannadham Thunuguntla from Centrum Broking Limited.
Amidst the global wave by central banks to cut interest rates in order to support the economy, extension in the trade war has further brought down investing interest by traders.
5. Traders sidelined
There is a lackluster vibe going though the domestic martket currently, with market participants sidelined, awaiting better outcomes.
"With the crisis deepening and widening, markets are eagerly looking forward if policymakers can talk-up the markets with market-friendly tone. Going forward, Fed's policy holds key to revive the market sentiment if they can provide delight with 50 bps rate cut, " said Jagannadham Thunuguntla, Sr. VP and Head of Research (Wealth), Centrum Broking Limited, passing his market view.
With less-convincing scenario for the market to advance, given the weak demand, extension in the trade war and lack of revival in corporate earnings, it is likely to expect a lack of direction or indecisiveness in the market in the upcoming days as well.
Edited by Rupa Burman Roy