Indian equities plummeted on Monday as investors feared the BJP’s crushing loss in the Bihar state election might stymie the reform process, but recovered later in the day. The rupee also lost ground, slipping to 66.4475 against the dollar, a fall of 1% over Friday’s closing, while the yield on the 10-year benchmark shot up to 7.749% levels in intra-day trade.
Market observers said the BJP’s defeat in Bihar raises risks of opposition intransigence in legislative policymaking and shifts focus on the reform policy response of the government. Citigroup Capital Markets described the BJP’s loss in Bihar as a “political pothole” that will bring some temporary discomfort for the markets. “The BJP loses big. This will likely hurt the market by 2-4% in the near term given a break in BJP’s momentum and dominance. (Though) we stay positive on the economic cycle, and the market,” Aditya Narain, MD and India strategist, Citi, wrote in a note.
Currency expert Jamal Mecklai believes exporters and importers stayed away and that the currency slid primarily on position-taking by market participants.
Sanjeev Prasad, senior ED and co-head (strategy), Kotak Institutional Equities, said the result of the Bihar election is not expected to have an immediate impact on the economic reforms agenda, and that the market will likely focus more on the weak Q2FY16 results and weaker underlying trends. “The Indian market is trading at reasonable valuations but will require the support of economic reforms, recovery and earnings,” Prasad said.
Prasad added that second quarter net profit of 44 Nifty companies have declined 5.1% y-o-y, while Ebitda is down 2.9% y-o-y.
“The underlying trends of volumes, order booking and NPLs indicate that economic recovery remains elusive. Valuations appear reasonable but will become pricier as we expect further earnings cuts for our FY16 and FY17 estimates,” Prasad said.
Odds that the US Federal Reserve will increase borrowing costs at its December meeting rose to 68% on Friday compared with 56% Thursday and also weighed on Indian and most Asian equities. The US economy added 271,000 jobs in October, exceeding the 185,000 jobs that economists had forecast, raising expectations of a rise in US interest rates in December for the first time since December 2008.
Benchmark indices declined for the fourth straight session on Monday and have seen losses in 10 out of the previous 11 sessions. After losing more than 600 points, the Sensex ended down 143.84 points or 0.55% at 26121.40. The Nifty settled at 7915, down 39.10 or 0.5%. The broader market outperformed frontline stocks to end higher led by gains in consumer staples, consumer durables, and automobile companies.
Foreign portfolio investors (FPIs) net sold $130 million of equities in the cash segment on Monday. Overseas funds have pulled out $180 million in the last 11 sessions. So far this year, FPIs have bought $4.4 billion, Bloomberg data showed.
Seven out of 11 sectoral indices ended in the red led by healthcare, realty and capital goods. Sun Pharma (-5.82%) and Dr Reddy’s Laboratories (-3.44%) dragged the BSE Healthcare index down nearly 1.5%.
The BSE Realty index fell 2.2%, while BSE Capital Goods Index declined 0.62%. Larsen & Toubro, the country’s largest engineering company, dropped to its lowest level since May 2014. ICICI Bank and HDFC Bank, the top two private lenders by assets, slid 1.5%.