Indian equities took a sound beating on Friday as fresh fears over political, regulatory and global developments spooked investors. Benchmarks Sensex and Nifty ended the day with losses of over 1.5% each. While the Sensex shed 509.54 points to close at 33,176, the Nifty lost 165 points to end the session at 10,195. The move by N Chandrababu Naidu, who leads the Telugu Desam Party, to exit the ruling alliance and introduce a no-confidence motion against the ruling NDA government sparked a fresh sell-off in a market already weighed down with other concerns. “The regime continuity was taken for granted as far as India was concerned, but with recent developments there is some uncertainty. Investors are concerned about this and equity risk premium of India has started inching upwards,” said Gopal Agrawal, CIO, Tata Mutual Fund. Andrew Holland, CEO of Avendus Capital Alternate Strategies, seemed to concur. “Globally, markets in Asia weren’t that great when we started off, and the political developments domestically added to that extra negativity. Neither was so strong to push the market down, they worked together,” he said. While agreeing with the view on multiple factors being at play, Arun Thukral, MD and CEO, Axis Securities, said, “Globally, trade war concerns have emerged and markets are worried that it could deteriorate the just improving global growth rate.
Given the global market trends, the sell-off in Indian equities was clearly out of sync, indicating a temporary decoupling as domestic issues gain prominence. Also noteworthy were the institutional flows. While foreign investors continued with their calibrated net selling ($23.17 million on Friday versus $29.69 million on Thursday), domestic institutions decided to press the sell button on Friday, net selling stocks worth $118.7 million (net purchase of $39.5 million on Thursday), its highest single-day net sales since the start of the year. Another worrying factor that couldn’t be confirmed was apparently large selling by high net-worth individuals (HNIs) ahead of the end of the financial year.
Market players suggest that HNIs were preferring to sell their holding and book profits before the fiscal end to avoid any future differences with income tax department officials on the taxability of their gains. The finance minister had introduced long-term capital gains tax on equities with January 31 as the cut-off date for the stock price to compute tax applicability. With markets having come off, exiting before March 31 should provide investors an opportunity to book tax-free gains for the year.
“There are some HNIs as well as corporates who are trying to book their profits before March 31 on equity to avail the grandfathering benefit. If you go into the next financial year, there is also worry that department will take a contentious view on price and things like that. Before the financial year ends, some investors are looking to crystallise their savings,” said a fund manager on condition of anonymity. Some unwinding at the close of the week may also have led to additional volatility on Friday, especially given the uncertainties on the political front.