Indian equities on Wednesday tanked to their lowest level in five months as a combination of block deals and basket sale by foreign institutions dragged the benchmark indices down by 2.7% – the biggest single day fall since January this year.
The deep correction in reflect decline in major Asian markets and overnight losses in US futures.
Provisional data from stock exchanges showed foreign portfolio investors (FPIs) sold Indian equities worth $270 million on Wednesday – marking the longest sell-off in Indian equities this calendar.
FPIs have cumulatively sold $2 billion worth of Indian equities in the last fortnight. The outflows have escalated in the last 15-odd sessions on the back of retrospective tax demands by the Income Tax (IT) department.
The Sensex ended 722.77 points or 2.63% on Wednesday to settle at 26717.37. The Nifty lost 227.80 points or 2.74% to 8097. Broader markets saw similar cuts with each of the BSE 100, BSE Mid-cap and BSE Small-cap universe losing in the range of 2.8-3.3%.
Market participants attributed the fall to build-up of short positions in the Nifty derivatives contracts. Bloomberg data showed a block sale of 6818 lots in Nifty May futures.
Dealers cited minimum alternate tax (MAT)-issue as the prime reason for the recent sell-off. In addition, slower-than-expected turn-around in economic growth and corporate earnings growth, and geopolitical issues arising out of West Asia and euro zone are also piling selling pressure.
After touching the much coveted 30,000 mark, the Sensex has lost 10% of the gains since mid-March, turning into the worst performing market globally.
Nirmal Jain, chairman of IIFL said the market may further correct by 4-5% in the near-term. “Earnings disappointment continues and the MAT issue has also impacted the foreign flow,” Jain said, adding that clearance of key policy reforms, coupled with improvement in macro factors and corporate earning will help the markets regain its lost ground.
On Wednesday, 29 out of 30-Sensex companies ended weak. Overall, 2,170 shares ended in the red as against 563 stocks that ended positively. All 11 sectoral indices ended weak, with capital goods, realty and banking shares leading the decline.
BHEL was the biggest loser on the Sensex while NTPC fell the most in eight weeks. ICICI Bank slid to a three-month low, sending the bank index to its sharpest loss since April 27.
“Investor sentiment is weak due to inaction on crucial government legislation,” said Deven Choksey, MD, KR Choksey Securities. “One of the important reasons for the fall could be that foreigners are selling to invest in China IPOs.”
Twenty-five companies were to sell initial share offerings from Tuesday through May 11, which may freeze 2.34 trillion yuan ($376 billion), according to Bloomberg data. The China Securities Regulatory Commission said last month it would increase the pace of IPOs.