Stocks sold off sharply on Wednesday, driving down benchmark indices to their lowest levels in five months partly on global and Asian cues and partly due to worries back home. Both the 30-share Sensex and the broader Nifty lost 2.7% in intra-day trading, way below their 200-day moving averages. The rupee too lost ground, closing the session at 63.54 to the dollar compared with 63.44 on Tuesday, while bond yields jumped to their highest in over four months to 7.892%. The price of crude oil rose above the $69-per-barrel mark.
Although most of Asia, including this year’s best performer China, traded in lower on Wednesday, India was the worst performing market as traders sold heavily in the derivatives segment. The Sensex ended at 26,717.37 points, down 722.77, while the 50-share Nifty was down 227.8 points at 8,097. Following the slide, India is now the worst performing market this year globally, having lost 2.7%.
While speculation that an algo-trade early in the morning led the correction could not be verified, traders said several block deals in the derivatives segment indicated a build-up of short positions. Bloomberg data showed a block of 6,818 lots of Nifty May futures, accounting for an open interest of 6.93 lakh shares, was sold at a discount to the spot Nifty.
Among the stocks that witnessed heavy build-up of short positions were Cairn India, Vedanta, UltraTech Cement, IDFC, JSW Energy, HCL Tech and Bharti Airtel.
Andrew Holland of Ambit Capital believes that in the absence of earnings recovery, the market is giving up some of its gains. “The street realises that nothing much has changed in the last one year other than a moderation in the interest rates and lower global crude oil prices,” Holland said.
Credit Suisse has trimmed its Nifty EPS estimates for FY16 and FY17 by 2% and 1%, respectively, Reuters said in a report. Indeed, with corporate earnings continuing to disappoint, the possibility of foreign portfolio investors (FPIs) having to pay a minimum alternate tax on their capital gains with retrospective effect and few signs of a firm recovery in the economy, investors are opting to take risk off the table. While purchases by FPIs have been moderating for more than two months now, since the second half of April, they have sold close to $1.8 billion worth of Indian shares.
The Sensex may be currently trading 19% above levels a year ago but the recent correction, since mid-April, has been sharp with the index losing 10%. In early March, the index had hit the 30,000 mark. While a couple of global factors, including a contagion risk arising out of an exit of Greece from the euro zone and a possible fund outflow following a rate hike by the US Federal Reserve are weighing on the performance of some of last year’s best performing markets, in India’s case domestic factors, especially weak earnings, dominate.
Poor corporate earnings and cautious commentary for the October-December quarter had resulted in an earnings downgrade. Consensus Sensex EPS (earnings per share) estimates for 2015-16 have come down from Rs 1,907 to Rs 1,768 in the last three months, Bloomberg data show.