Sensex, Nifty drop as trade war fears grip markets

By: | Updated: March 23, 2018 4:08 AM

This was the 10th day of decline in 15 sessions this month, indicating a ratio of two down days to every up day in the month

Sensex,  Nifty, Indian equities, MSCI, Morgan Stanley, asian markets, Federal Reserve, bank of england, NSE Bank NiftyThe Sensex and Nifty have shed 3.45% and 3.60%, respectively in March so far, even as foreign and domestic institutions have been net buyers. (Reuters)

Indian equities slipped deeper into the red on Thursday with the benchmarks Sensex and Nifty shedding about 0.4% each to end the day at 33,006 (-129 points) and 10,114.75 (-40.50), respectively. This is the 10th day of decline in 15 sessions this month, indicating a ratio of two down days to every up day in the month. The Sensex and Nifty have shed 3.45% and 3.60%, respectively in March so far, even as foreign and domestic institutions have been net buyers. Foreign investors have infused a net $1,552 million this month, while domestic institutions have invested a net $164 million. This trend contrasts with February when foreign institutions were net sellers (selling a net $1,879 million), even as domestic institutions were big buyers (net investment of $2,664 million).

A correction in valuations could be behind the trend reversal, as the valuation premium of Indian equities (reflected in the PE of MSCI – India index) narrowed to 36.5% over the emerging markets group (PE of MSCI – Emerging Markets index) from a high of 46.7% in early February. Indian equities now trade at a forward PE of 16.9 (18.3 on January 1, 2018) against 12.4 for the emerging markets group (12.49) and 15.7 for world equities (16.9). However, in the near term, news flow seems to be driving stock prices, as equities slumped after a firm opening following weak cues from European markets that got spooked by fears of a trade war with US President Donald Trump expected to sign a presidential memorandum on tariffs targeting about $50 billion of Chinese imports, reports suggested. Markets were also nervous about the imposition of tariffs on steel and aluminium with effect from Friday, a matter the European Union is likely to seek exemption from.

Though the Federal Reserve rate hike was on expected lines, and this led to early buoyancy in Asian markets in the morning, European investors were more focused on a rate decision by the Bank of England. In an interview to Bloomberg, Morgan Stanley’s chief strategist for Asia and Emerging Markets said, “rising Libor rates is a bigger concern right now than a more hawkish Federal Reserve, and in fact, is the story of the year.” He added that this was “a key reason why the markets have struggled” and that the “acceleration in the private borrowing market is the story of the year, not the Fed”.

A large chunk of corporate borrowing happens in Europe where the Libor has been on the rise for over 30 consecutive sessions and the spread over the risk-free rate has scaled to over 55 basis points, a level not seen since 2009, said a report. What’s also keeping markets on the edge is the global trade tirade. Markets are clearly concerned that China may retaliate—the Hang Seng shed over 1% in trade and the Hong Kong dollar fell to a 33-year low, agencies reported. In India, some selling has been attributed to high networth investors pressing sales to avoid coming under the purview of the taxman for past gains, after the government reintroduced the imposition of long-term capital gains tax on equities from February this year, with a grandfathering clause.

Equity benchmarks erased early gains after realty, capital goods, teck, auto, PSU, IT, power and bankex counters came under selling pressure, falling up to 1.28%.
Banking stocks again faced the heat largely due to weekly derivatives expiry in the NSE Bank Nifty. SBI, ICICI Bank, PNB, Canara Bank, Axis Bank, Yes Bank, and Bank of Baroda ended with losses up to 2.62%.

Other losers included Wipro, M&M, Maruti Suzuki, Dr Reddy’s, Adani Ports, Infosys, Bajaj Auto, L&T, TCS, Coal India, Bharti Airtel, HDFC, Power Grid, Hero MotoCorp, ITC, Tata Steel and HUL, falling up to 2.32%. However, ONGC, IndusInd Bank, Tata Motors, RIL, Sun Pharma, Asian Paint and NTPC ended in the positive zone, rising up to 2.45%.  Among the BSE sectoral indices, realty fell the most at 1.28%, followed by capital goods (1.07%), teck(0.99%), auto (0.94%), PSU (0.93%),IT (0.91%), infrastructure (0.69%), power (0.66%), bankex (0.66%), healthcare (0.60%), FMCG (0.36%) and oil & gas (0.29%). (With PTI inputs)

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