Benchmark indices posted losses for a second consecutive week as foreign portfolio investors (FPIs) pulled money from emerging markets amid fears of a recession in China.
The BSE Sensex lost 701.24 points, or 2.49%, for the week, whereas the Nifty lost 218.6 points, or 2.56%. Even broader markets remained under selling pressure as the BSE Midcap lost 2.07% and the BSE Smallcap fell 1.32% during the week.
FPIs sold equities worth nearly $550 million in the cash segment during the week, as per Bloomberg data.
Metal companies were the biggest losers as investors feared that falling commodity prices in global markets and devaluation of yuan by China would lead to an upsurge in import of metals, especially steel. The BSE Metal index lost 405.88 points, or 5.2%, during the week. The index has lost nearly 15% in the last two weeks.
Any further devaluation of yuan would hurt Indian markets, experts said.
“Scores of countries faced severe balance of payment stress over commodities’ crash and, unsurprisingly, their currencies have corrected 15-30%. India, meanwhile, has benefited immensely. However, it can pose extreme risk if yuan devalues further as it could create reflexive responses from market participants. India could face same BoP challenges, which could hurt economic recovery,” said Nirav Sheth of Edelweiss Financial Services.
Banking scrips also slumped during the week, with the BSE Bankex down 3.7%. Emkay Global noted in a research report that the current quarter could be weak for the banking sector as growth would be slower than in the past and there was a limited scope for margin expansion. Also, the likelihood of restructured loans defaulting could be high.
Shares of real estate companies slipped as well, with BSE Realty declining nearly 9% during the week. DLF lost nearly 15% during the week to settle at R114.05 a share.
On Thursday, the RBI announced grant of licence to 11 entities to set up payments banks. Global credit agency Fitch Ratings said the emergence of payments banks would increase competition for public sector lenders and could also pose risks to market share over the long term.
Pharma companies were the biggest gainers during the week as the BSE Healthcare advanced 2.1%. A note to investors, published by Credit Suisse, said Indian pharma companies were benefiting from the pick-up in approvals by US Food and Drug Administration(FDA) and predicted that near-term prospects were positive.