Subdued economic sentiment weighs heavy on equity indices

By Rohit Vaid

Mumbai, Sep 23 (IANS) Subdued macro-economic sentiment, coupled with rising geo-political tensions in the Korean Peninsula and continuous outflows of foreign funds dragged the key Indian equity markets in the red last week.

Consequently, the two key indices -- the BSE Sensex and the NSE Nifty -- receded below their psychologically important levels of 32,000-points and 10,000-points as investors were spooked over a possibility of government exceeding its fiscal deficit target to stimulate the economy.

On a weekly basis, the 30-scrip Sensitive Index (Sensex) of the BSE declined by 350.17 points or 1.09 per cent to 31,922.44 points.

Similarly, the Nifty 50 of the National Stock Exchange (NSE) edged lower to 9,964.40 points, down 150.6 points or 1.19 per cent.

According to Dhruv Desai, Director and Chief Operating Officer of Tradebulls, rising geo-political tension eroded investors' risk-taking appetite and subdued global and domestic markets.

"Geo-political tensions, continue to take centre stage, as things have gone from bad to worse," Desai said.

Besides geo-political tensions, FOMC (Federal Open Market Committee) minutes dampened investors' sentiments. The US Fed has indicated that there will be one rate hike in December 2017 and three in 2018.

A likely US rate hike can potentially drive away foreign portfolio investors (FPIs) from emerging markets such as India.

"Domestic markets became nervous after the US Federal Reserve outlined plans to unwind its $4.2 trillion balance sheet starting next month," D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors, told IANS.

"The domestic currency hit 65 levels against the US dollar for the first time in more than five months on the back of speculation about the government going in for a fiscal deficit relaxation, with talk of a Rs 40,000-Rs 50,000 crore stimulus."

Provisional figures from the stock exchanges showed that FIIs continued with their selling spree and off-loaded stocks worth Rs 5,448.66 crore during the week.

However, domestic institutional investors bought scrip worth Rs 3,581.88 crore.

Figures from the National Securities Depository (NSDL) revealed that foreign portfolio investors (FPIs) divested equities worth Rs 3,911.21 crore, or $354.46 million, during September 18-22.

On the currency front, the Indian rupee weakened by 72 paise to close the week at 64.80 to a US dollar from its previous week's close at 64.08.

Market observers added that liquidity was redirected from equities to insurance IPOs of ICICI Lombard and SBI Life.

"During the week Insurance IPOs of ICICI Lombard and SBI Life sucked some liquidity from markets, FII flows remained negative... Indian rupee became weak against the US dollar along with most of Asian currencies," said Anita Gandhi, Whole Time Director at Arihant Capital Markets.

"Macro factors like fiscal deficit, CAD, inflation and new employment generation indicated weakness."

(Rohit Vaid can be contacted at rohit.v@ians.in)