The fall was not only restricted to equity benchmarks, but was also seen in broader markets as the BSE Midcap index crashed 12.55 percent and Smallcap lost 16 percent.
Equity market witnessed a bloodbath in September where benchmark indices plunged more than 6 percent each dragged by volatility in rupee, higher crude oil prices and liquidity crisis fears in NBFCs.
The fall was not only restricted to benchmarks, but was also seen in broader markets. BSE Midcap index crashed 12.55 percent and Smallcap lost 16 percent.
In real sense, the sharp fall seen in September was long awaited as the market has been going in one direction after the last correction seen in February and March 2018.
In absolute terms, the Sensex dropped 2,417.93 points to 36,227.14 and the Nifty lost 750.05 points to touch 10,930.45.
Experts feel the sharp fall seems to have priced in most of bad news. So they expect some consolidation for a couple of weeks before resuming direction on either side.
"From the short-term point of view, the Indian market valuations were a bit stretched to begin with, especially when compared to the premium it commanded vis-à-vis its emerging market peers. This was already somewhat evident from the fact that FIIs were net sellers of Indian equity to the tune of around Rs 15,000 crore between April-August 2018," Jayant Manglik, President, Religare Broking told Moneycontrol.
In September, FIIs sold Indian shares worth nearly Rs 10,000 crore and even in debt they were net sellers to the tune of same amount. However, DIIs bought more than Rs 12,500 crore worth of shares, as per provisional data.
In fact, experts have been saying that the entire year is expected to be volatile.
"There are some well-hyped reasons for investors to be cautious and market will rise and fall in the course of multiple news flows from all grounds, may it be higher crude levels, higher rupee, increasing interest rate scenario, trade wars tensions and local political saga dragging markets and disturbing sentiments of all category of investors," Prashanth Tapse, AVP Research, Mehta Equities said.
Here are top five factors that hit investors sentiment in September:
IL&FS-led Liquidity Fears
The biggest factor that added more fuel to the fire in September after rupee and crude was IL&FS-led liquidity crisis fears. IL&FS defaulted on several interest payments to bondholders due to cash crunch which made rating agencies downgrade its rating to D and also the crisis spilled over to forceful redemption pressure on select fund houses including DSP MF which sold 'AAA' rated bonds of DHFL at a steep discount.
Another major reason was profit booking as these stocks have rallied sharply in the last couple of years.
But finally, the government and RBI stepped in to infuse liquidity followed by appointment of new board members for IL&FS by Ministry of Corporate Affairs which improved sentiment.
Rupee Depreciation
The sharp depreciation in emerging markets currencies - Indian Rupee, Argentina Peso, Turkish Lira etc against US dollar - was the starting point of down move during the month.
The imposition of fresh tariffs by US on imports from Turkey, likely widening of trade deficit of the country, continuous outflow of FII money and expected tightening of liquidity by central banks globally hit sentiment in emerging markets currencies.
The rupee fell more than 13 percent year-to-date to hit a record low of 72.97 against the US dollar during the month.
Crude Volatility
Crude is the key factor for country like India as it imports around 85 percent of oil requirement. So any rise in crude oil prices is always major concern.
During the month, Brent crude futures rallied from around $71 a barrel to over $82 a barrel and now in October it was trading above $85 a barrel, the highest level since November 2014, as investors worried about supply concerns after US put sanctions on Iran which will be effective from November. Also a geopolitical tensions in other parts of oil countries also led the rally in oil.
Trade Deficit
Weakening rupee and rising crude oil prices created double whammy effect on trade deficit in September.
Investors worried that if both factors go hand in hand then it may raise fiscal concerns which may result in lowering infrastructure & other expenditure by the government, which may ultimately slow down growth of the economy.
Trade War Tensions
The last reason that led sell-off was unsolved trade war between world's largest economies US and China. The fresh tariff on $200 billion worth of Chinese goods came into effect last week.
Both countries tried to resolve this trade war through talks but failed many times. In addition, there was concern about US-Mexico-Canada trade deal but finally that resolved in October wherein Canada and Mexico accepted more restrictive commerce in the new United States-Mexico-Canada Agreement (USMCA).
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