Indian equities tanked 1.5% in late trade on Wednesday to the lowest level in more than two months and the rupee fell the most in a week as nervousness surrounding China’s economic growth, an interest rate hike in the US and the aftermath of terrorist attacks in Paris spooked investors. The rupee declined 0.4% to 66.2950 a dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It has retreated 1.6% so far this month.
Stock indices in China — the Hang Seng and Shanghai Shenzhen CSI 300 — both ended weak after Chinese President Xi Jinping acknowledged downside risks to growth. Xi acknowledged the challenges of a slowing global growth this year but gave assurance that the country’s economy will keep growing. Bloomberg reported Xi as saying, in general, China’s positive economic fundamentals and long-term trajectory remain unchanged.
Market experts said investors were cautious ahead of the release of the US Federal Reserve’s October meeting meetings. They anticipate, that a better-than-expected jobs data for October will prompt the Fed to raise rates at its meeting next month.
According to Bloomberg, experts said December rate hike expectations have risen to 66% now compared with 35% before the October meeting and 50% immediately after Fed’s October statement.
After Tuesday’s rebound, Indian markets opened weak on Wednesday and remained skittish as foreign fund selling exasperated, reflecting a late fall in US on Tuesday, and weakness in Asian and European markets on Wednesday.
Foreign portfolio investors (FPIs) net sold $116 million of Indian equities in the cash segment on Wednesday, taking the month-to-date tally to nearly $650 million. Indian markets are witnessing another spell of selling by foreign funds ahead of US Fed meet in mid-December which would consider a hike in the interest rates in US.
Back home, the Sensex declined 381.95 points or 1.48% to end at 25,482.52 led by banks and technology stocks. The Nifty lost 105.75 points or 1.35% to settle at 7,731.80. Losses were limited in broader markets as the BSE Mid- and SmallCap indices ended down 0.7% each.
Infosys shares lost 3.89%, their biggest single-day decline in two months, after India’s second-largest software exporter warned of weaker margins in the December quarter and the second half of the current financial year due to lower spending by top clients.
The BSE Bankex declined 1.95% or 383.03 points to end at 19,220.23 led by public sector banks. State Bank of India (SBI), India’s largest lender by assets, declined 2.8%. ICICI Bank and Bank of Baroda lost more 2.5% each.
After Wednesday’s fall, the Sensex trades at 15.2 times projected 12-month earnings, compared with a multiple of 11.1 times for the MSCI Emerging Markets Index.
While benchmark indices have lost nearly 5% in the last three weeks and weakness prevails, market experts are advising “buying on dips” as India is better placed compared with Asian and emerging market (EM) peers.
Rakesh Arora, MD and head of research, India, Macquarie Capital Securities said that FPI inflows will resume soon as some of the reforms measures and infrastructure spending is closely watched.
“India is separating out little bit and standing out (compared with EM peers). Whoever we are speaking to is clearly looking at India very closely. Markets have corrected and we should see some buying coming through from FPIs also in the near future,” Arora said in a television interview.