Indian equities tumbled to 21-month lows, sending the benchmark stock index into a bear market, as disappointing earnings added to concern about increasing outflows and the global economic outlook. The sentiment in the market was hurt by the weakness in Asian and European markets. The relief rally that swept through Europe’s stock markets on Wednesday came to an abrupt halt as shares slid for the eighth time in nine days and headed for their lowest levels since September 2013. The Stoxx Europe 600 Index lost 3.2% at 9.58 am in London, with more than 580 of its shares slumping.
The S&P BSE Sensex slumped 3.4 % to 22,951.83 points, the lowest close since May 2014. The gauge has fallen 23% from its January 2015 record and trades at 14 times its projected 12-month earnings, compared with a multiple of 10 for a gauge of emerging markets.
Meanwhile, the rupee weakened the most in a month, retreating 0.7% to close at 68.30 per dollar in Mumbai, taking its 2016 decline to 3.1%. The currency fell to as low as 68.3450 earlier, its weakest level since September 2013.
Global funds have pulled out a net $2 billion from Indian markets in 2016.
“Emerging-market funds are facing redemptions and India is still overweight among these funds, and that’s a negative,” Sanjeev Prasad, the Singapore-based co-head and senior executive director at Kotak Institutional Equities, said in an interview with Bloomberg TV India on Thursday. “Valuations have become reasonable, but I don’t think anybody has the confidence to buy because money is constantly flowing out of EM funds.” Lacklustre earnings has added to the selling pressure.
About $365 billion has been erased from stocks’ value from last year’s record level. The slump has ended a 1,514-day bull market run, the nation’s longest ever. Overseas investors withdrew $1.9 billion from local shares this year, turning sellers after four years of net purchases.
Fifty-two % of the 25 Sensex companies that have posted December-quarter results so far have exceeded estimates, compared with 57% of index members in the three months to September 30, and 60 % in the prior quarter, data compiled by Bloomberg show. Banks have suffered among the biggest losses, with a gauge of 12 state-owned lenders trading at 0.5 times its book value, an all-time low. State Bank of India, the largest by assets, is the worst-performing stock on the Sensex this year, after slumping 28 % in 2015. While India’s economic growth picked up to 7.2 % in 2015, the nation’s lenders are reeling under bad debts of as much as $59 billion that they have to clear from their books by March 2017. The banks have been given incentives by Reserve Bank of India to speed up loan write-offs and must meet tighter international capital standards.
“With recovery in corporate earnings several quarters away, only a sharp correction in prices can justify buying into this market,” Venkat Subramanian, who manages a Rs 2,000-crore ($290 million) long-short fund at Infina Finance, said in a phone interview from Mumbai. “We will look at building net long positions if the benchmark indices drop another 8 to 10 %.”