Stocks and bonds sold off on Monday while the rupee depreciated as sentiment remained weak, reports fe Bureau in Mumbai. Investors are apprehensive an already weak economic recovery will be further hurt by a sub-par monsoon, leaving corporate earnings subdued and constraining the Reserve Bank of India (RBI) from cutting rates further. The Bloomberg estimate for FY16 earnings per share for the Sensex companies is already down 2% at Rs 1,750, post the latest earnings season. The Sensex fell for a fifth straight session, sending the markets to an eight-month low.
The Sensex along with Jakarta Composite Index is now the worst performing index in 2015, having lost about 4% of its value. The rupee breached the key 64 to the dollar mark to close at 64.08, down 0.51% over Friday. Data from depositories showed that foreign investors have pulled out $245 million from equities and $1.6 billion from the bond market since May 1.
The yield on the benchmark 10-year 7.72%, 2015 bond has risen 10 basis points since last week when the central bank trimmed the key repo rates by 25 basis points to 7.25%. Dealers believe the mood is subdued on worries there may be no more rate cuts in the near future.
On a day when all European and emerging markets except China came under selling pressure, India emerged as one of the worst hit with both the Sensex and the broader Nifty losing close to 0.9% to close at their lowest since late October 2014. Including Monday’s drop of 245.50 points, the Sensex has now lost 1,326 points or 4.8%, its second steepest five-day decline since late April when it lost about 1,368 points.
HSBC Securities recently downgraded its rating on the Indian market to “underweight”, noting the risks to economic growth were rising with limited room for further rate cuts. The foreign brokerage noted that the earnings cycle may come under pressure due to a slow recovery in investment cycle and expectations of a poor monsoon. Buying by foreign portfolio investors has slowed although the quantum of sales remains small. Since May, FPIs have sold a net $245 million worth of equities, bringing down their net year to date purchases to $7 billion from the peak of $8.5 billion in April.