No longer the favourite of global fund managers, many of whom are now underweight on India, the Indian market threatens to remain an underperformer as it has been for the better part of the last four months. The bellwether Sensex failed to hold on to the 19,000 mark on Wednesday as foreign institutional investors (FII) took money off the table, having sold stocks worth $0.73 billion in January so far. With Wednesday?s fall, the Sensex has lost close to 10% from its life-time closing high of 21,005, which it hit on November 5, 2010.
Fund managers are particularly worried about inflation, rising interest rates and high current account and fiscal deficits. Apart from the macroeconomic headwinds that have made investors cautious, corporate results announced so far have been a bit of a mixed bag with Infosys disappointing the Street but Tata Consultancy Services doing well. Fund managers, however, seem to be unwilling to take chances as was evident from the fall of the Larsen & Toubro, stock to a seven-month low on Wednesday. The company?s had seen orders slowing during the December 2010 quarter.
The anticipation that corporate India?s profits would be impacted going ahead as interest rates rise in the wake of soaring inflation, has left the Street nervous. While the benchmark indices were weak, however, smaller stocks fared relatively better on Wednesday. The BSE Midcap Index gained 0.15% while the BSE Smallcap Index gained 0.09%. The breadth of the market too was not as poor as it has been in recent sessions, at nearly 1:1. The turnover on the NSE?s derivatives segment continued to be high at Rs 1,25,194 crroe compared with the six-month daily average of Rs 1,20,962 crore. Cash turnover on the NSE at Rs 13,132 crore, however, was lower than the daily six-month average of Rs 15,130 crore.
Of the 13 sectoral indices of BSE, nine were in the red. IT index was a loser as was the capital goods index. After having been thrashed over the past week, banking stocks recovered somewhat with the BSE Bankex ending the day in the green after giving up over 5% in five sessions last week.
Market observers also believe that some developed economies are seeing positive revisions for GDP which could prompt foreign investors to turn their attention away from emerging markets like India towards developed world equities. They also feel the Indian markets will perform better in the second half of the year as inflation concerns ebb and global commodity prices stabilise.