A clutch of bad news for the Indian economy, combined with a flare-up of tension on the Indo-Myanmar border, and the prospect of another interest rate hike by the US Federal Reserve, collectively dragged key stock indices down for the seventh straight session and the rupee to a six-month low on Wednesday.
Opening weakly owing to relentless selling of Indian equity by foreign institutions and indications of a further rate hike by the US Fed later this year, the market nosedived in the second half of the trading day after the government announced that the army had carried out operations against Naga militants across the Myanmar border.
Former Finance Minister and BJP leader Yashwant Sinha’s searing criticism of the Modi government’s management of the economy, particularly the demonetisation exercise and the implementation of the Goods and Services Tax (GST) framed a day of dismal discourse about the economy.
Adding to the doom-and-gloom outlook, India Ratings and Research agency lowered its GDP growth estimates for 2017-18 to 6.7 per cent from the earlier 7.4 per cent.
It reasoned that the combined effect of demonetisation and introduction of GST “is proving to be more disruptive for the economy than was expected earlier.”
Sectoral indices in redThe benchmark BSE Sensex lost 440 points on Wednesday to close at 31,159.81, while the Nifty lost 1.38 per cent to finish the session at 9,735.75. The Bank Nifty lost 1.6 per cent to close at 23,812.95. All the sectoral indices on the NSE closed in the red, with pharma, PSU banks and metal stocks losing the most. On the BSE, the broader indices registered bigger losses, with the BSE 100 losing 1.45 per cent while the BSE Midcap index closed down nearly 2 per cent. Foreign institutions have sold close to $777 million of net equity this month, as they seek safer havens in home markets amid rising geopolitical tensions between the US and North Korea.
FIIs sold net equity of ₹856.28 crore on Wednesday, while domestic institutions bought net equity of ₹1,858.29 crore. Retail investors on the BSE sold net equity of ₹138.72 crore in this session.
Sneha Seth, Derivative Analyst, Angel Broking, said FIIs have formed huge short positions in index futures along with longs in index puts and writing call options. “We believe the market may continue to remain under pressure in the near term.”
The rupee closed 27 paise weaker at 65.72 to the dollar against the previous close of 65.45.
“The rupee continued to trade at over-six-month lows against the dollar in the afternoon session, as local shares extended losses, increasing concerns of foreign fund outflows amid Federal Reserve rate hike bets later this year,” said an IFA Global report.
Bankers say that expectation of an interest rate hike by the US Fed could see a flight of capital from emerging market economies such as India to safe-haven assets in the US.