Indian equity market is showing action on the downside in May, with the domestic equity indices falling for seventh straight sessions to a two-month low. Growing concerns over the trade talks between China and US coupled with Lok Sabha elections have led to nearly 1,500 points decline on the Bombay Stock Exchange in last 7 sessions.
Continuing its losing streak, the BSE Sensex closed at 37,558.91, down by 230.22 points and NSE Nifty settled in the red by declining 57.65 points down to 11,301.80 today. On Wednesday, Sensex had slipped almost 500 points to 37,789 while Nifty shed 138 points to close at 11,359.
5 major factors that indicate downslide on Dalal Street are:
1. US-China trade war escalation
Global markets are witnessing heavy sell offs after trade tensions between the US and China escalated, with Donald Trump threatening to hike import tariffs on Chinese goods worth $200 billion. Amid fears of the trade war between US-China, indices like FTSE, CAC and DAX slipped 1% each today. Indian market also declined nearly 1% today. US has sent out a notice in the Federal Register formally layingthe groundwork to raise tariffs on $200 billion of Chinese imports to 25% from 10% early Friday. China's top trade envoys, including Vice Premier Liu He, are in Washington to resume negotiations. Investors are expected to remain cautious and closely watch the trade talks between the two biggest economies, further escalation of which can also impact the Indian rupee.
2. Lok Sabha elections
High market volatility suggests that traders are cautious ahead of the Lok Sabha elections and are expected to remain volatile in the near term. This would be a good time for investors to accumulate stocks at lower levels, and keep ready with their shopping cart, waiting to take positions for different poll outcomes.
3. Q4 results impact
Q4 results performance has affected the Indian equity markets as well. The trend in earnings revision remained in favour of downgrades. Where weakness in the refining and petrochemical margin persists, results for FMCG companies have been either below expectations or in line so far. Private banks continued reporting steady trends in loan growth, while the margin trajectory remains mixed. Corporate banks demonstrated a decent improvement in asset quality, while auto slowdown continues. Consumer staples commentaries have turned weaker on demand. On Q4FY19 interim earnings review, Motilal Oswal added, "Of the 19 Nifty companies that have announced their earnings, 15 have either met or exceeded our estimates on both the PAT and EBITDA front. The earnings upgrade/downgrade ratio is < 1, with 14 MOFSL Universe companies witnessing upgrades of 3%+ and 26 witnessing downgrades of more than 3%, indicating the continued weak underlying earnings momentum."
4. Oil prices
The Trump administration surprised Iran's oil customers, including India, China and Turkey, last week by saying no waivers on the sanctions would be granted after May 1, ending six months of exceptions to the sanctions for reductions in purchases. US sanctions on import of oil from Iran kicked in on 2 May. President Donald Trump's efforts to sink Iran's oil exports to zero will have a direct impact on India, as it imports a bulk of the oil it consumes and a significant portion of this earlier came from Iran. Now trading at $73 a barrel, oil prices shot up to six-month high of above $75 a barrel following the news, impacting Indian markets as well as the currency.
5. Volatility Index
The National Stock Exchange's (NSE's) India VIX index, which tracks investors' perceptions of volatility for at least a month ahead, has soared 59% in the year so far. The volatility index has been up as much as 14.80 per cent in the past one week, suggesting volatile swings could continue in the market ahead of election polls and its outcome. India VIX is a volatility index based on the Nifty Index Options prices. The volatility index typically has an inverse correlation with the markets. The index at elevated levels indicates investors expect a major correction at least over the next month.