Market melts as Budget spooks investors, global sell-off adds to woes

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Mumbai | Updated: July 9, 2019 7:51:56 AM

Global sell-off adds to woes, Sensex dives 793 pts, the biggest fall in 2019

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The Sensex on Monday posted its sharpest single-day fall in nine months after Budget proposals of an increase in minimum public shareholding limit and additional taxes on the super rich spooked investor sentiment.

Lack of direct measures for an ailing automobile sector and a 20% tax on buybacks also disappointed equity market investors. Both the Sensex and Nifty slipped below their 50-day moving average and lost over 2% each. While the Sensex slid 792.82 points to end the session at 38,720.57 points, broader Nifty shed 252.55 points to close at 11,558.60.

With Monday’s fall, the Sensex has lost 1,187.49 points in the last two sessions, which eroded the combined market cap of BSE by `5.61 lakh crore to `147.96 lakh crore.

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The weakness in the broader market is quite apparent as the number of stocks with a market capitalisation of `1,000 crore or more has slipped to 713 on Monday – two companies lower to the March 2017 quarter tally of 715. This reflects the deteriorating performance of the broader market, masked by the surge in the indices.

At the end of December 2017, 853 companies commanded a market capitalisation of `1,000 crore or more, data sourced from Bloomberg showed. However, with corporate earnings turning out to be very disappointing in the last two years, several stocks have lost value.

The Nifty midcap Index has given up about 6.4% since the last one year, and 65% of its constituents have lost value. The Nifty smallcap index has shed 16.2% during the same period, and nearly 70% of its members have seen a fall in prices.

Interestingly, foreign portfolio investors (FPIs), who have been buyers for the most part of 2019, turned sellers in July. Overseas investors have offloaded shares worth $426.8 million so far this month and have been sellers in four out of the six sessions. FPIs sold shares worth $58.5 million on Monday, provisional data on the stock exchanges showed.

However, so far in 2019, overseas investors have purchased shares worth $10.91 billion. This compares with the domestic institutional investors selling $981.3 million worth of stocks so far this year.

India remains one of the most expensive markets in the world. At its close of 38,720.57 on Monday, the Sensex now trades at a price-earnings (P/E) multiple of 18.5 times to the estimated one-year forward earnings, against the long-term average PE of 16.9 times.

This compares with 11.3 times for Kospi and 15.2 for Jakarta Composite. Russian and Turkish equities were the cheapest in the emerging market with a forward price-to-earnings ratio of 5.9 each, Bloomberg data showed.

Historically, Indian equities have traded at an average P/E premium of 26% to the Asia pacific region, excluding Japan.

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