With foreign institutional investors (FIIs) selling heavily on Friday, Indian benchmark equity indices extended their losses for a fourth consecutive day, posting their biggest weekly loss?around 4%?since October 2009.
Compared with sales of around Rs 1,000 crore in each of the three previous sessions, FIIs on Friday sold Rs 2,415 crore worth of stocks, according to provisional data from the stock exchanges. At one point, the BSE Sensex had dropped some 443 points before the better-than-expected numbers from Reliance Industries shored up the indices.
Nifty January futures closed at 5,014, with the discount widening to over 20 points from just 9.6 points in the previous session. Concerns relating to the Chinese government?s plans to curb lending, as well as the US government?s proposed measures to restrict banks? proprietary trading operations, investments in hedge funds and private equity, hurt trading sentiment across the region.
Says HSBC InvestDirect MD & CEO Manasije Mishra, ?Several hedge funds with investments in emerging markets are owned or funded by banks. The latest proposal by the US administration could lead to unwinding of position in various asset classes.?
Mishra added that there is concern that the strong growth numbers out of China may cause authorities to clamp down further. ?Any significant tightening of credit will have a knock-on effect on the commodities markets and other regions having substantial trade relations with China,? he said.
All Asian markets, including Japan, closed in the red on Friday with the Nikkei 225 sliding 2.6% to a three-week closing low of 10,590.
The Shanghai Composite ended the day at 3,129 points, down close to1%. The Straits Times Index fell 1.10%, while the Hang Seng was down 0.65% and the Kospi shed 2.19%.
The BSE Sensex was off by 191 points, or 1.12%, to end the day at 16,859.68, while the broader S&P CNX Nifty ended the trading session down 58 points, or 1.14%, at 5,036.
The market correction is somewhat sudden, given that in the first two weeks of 2010 Asian equity funds had witnessed inflows and, had it not been for some redemption from China country funds to the tune of around $485 million, net inflows to all Asian dedicated funds would have been $1.1 billion.
India and Japan have been the main beneficiaries of the China outflows. At $577 million in the week to January 13, inflows to Japan were the highest reported since March 2007, while India received an amount just short of $150 million.
Markets came off on high volumes, with turnover on the NSE cash segment at Rs 20,585 crore, much above the six-month average daily turnover of Rs 17,161 crore. Turnover in NSE derivatives on Friday, at Rs 1.32 lakh crore, was 83% higher compared that the six-month daily average.
?The market is reacting more to news coming in from overseas rather than domestic factors,? said Mirae AMC CEO Arindam Ghosh. Ghosh added that recent events in China had prompted overseas investors to book profits and rebalance their regional portfolio allocation.