Indian equities took a big tumble on Friday after it rained GDP downgrades and foreign investors hinted that the India story might be coming to an end. The Sensex lost 253 points, or 1.56%, to end the day at 15,965 while the Nifty closed 82.65 points, or 1.68%, lower at 4,841.60. The weak European markets, as also lacklustre economic data from China, also dampened sentiment.
CLSA?s Christopher Wood ? the reputed writer of Greed and Fear ? said on Friday that the ?infectious optimism has entirely disappeared from the Indian story?. Wood?s view captured the mood of foreign investors tired of an indifferent and ineffective government, a plunging rupee that has eroded their portfolios and weak corporate earnings.
On Thursday, India reported GDP growth for the March 2012 quarter at just 5.3% year-on-year, way below estimates. It prompted a string of downgrades and a sell-off in the markets; Friday?s fall, the third consecutive session of decline, was the highest since May 16, 2012.
?The market is nowhere near the trough valuations of March 2009, and the de-rating India has seen in the past seven quarters has so far not led to much net selling by FIIs,? Wood said.
The risk is that there is more selling to come, he added.
Foreign investors have sold stocks worth $103 million in April and $273 million worth in May after having been net buyers of far larger values of equities in January, February and March.
On Friday, while the rupee touched an intra-day low of 56.28, the currency recovered at close to end stronger at 55.58, helped by a strengthening of the euro. According to Wood, the rupee could slide towards 60 levels if there is any kind of a ?euroquake?. The Indian currency lost 5% in May alone.
The Street has been struggling to deal with negative news flow on the Indian economy. Citigroup said it had revised its FY13 GDP estimate to 6.4% from 7%, in view of the latest data and sticky deficit issues. Standard Chartered lowered its growth outlook for 2012-13 to 6.2% from 7.1%. ?The data for the March quarter suggests that the driving force behind the India growth story ? the consumer ? has lost momentum,? chief economist Samiran Chakraborty said.
?Reflecting the incoming weaker growth data and continued weak global funding environment, we are cutting our 2012 GDP growth estimates further to 5.7% from 6.3%. On a fiscal year basis, we have cut F2013 GDP growth from 6.3% to 5.8% (a 10-year low),? Morgan Stanley wrote in a report.
The HSBC India manufacturing PMI held broadly steady at 54.8 in May (against 54.9 in April).
Meanwhile, European stocks fell to a five-month low on Friday as reports showed that US payrolls increased at the slowest pace in a year and the unemployment rate unexpectedly rose to 8.2%, adding to weakening economic data from China and the euro area. In mid-day trade, Germany’s DAX was down more than 4% or 250 points, France’s CAC had lost nearly 2.5%. while the FTSE was down by 1.6%.
China’s official Purchasing Managers’ Index fell more than expected to 50.4 in May, the weakest reading this year and down from April’s 13-month high, in the latest sign that output in the world’s second-biggest economy is cooling.