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Sensex tanks 560 pts on FPI worries, Fed U-turn on rate cut prospects

BSE Midcap index declined 1.99 per cent and BSE Smallcap index ended 1.83 per cent lower.

ETMarkets.com|
Updated: Jul 19, 2019, 04.12 PM IST
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The market took a U-turn by midday and slipped deep into the red.
NEW DELHI: Benchmark equity indices took a beating on Friday led by a sharp drop in banking and NBFC stocks, a day after ADB lowered India's growth forecast for this financial year to 7 per cent.

The market had a strong start to the day amid strong global cues after signal from a Fed official that the US central bank was on course to cut rate this month-end. Sensex had risen 130 points and Nifty topped the 11,600 mark in opening trade. But the market took a U-turn by midday and slipped deep into the red.

BSE Sensex closed 560.45 points or 1.44 per cent lower at 38,337.01 while NSE Nifty ended at 11,419.25, down 177.65 points or 1.53 per cent.

In the 30-pack Sensex, four stocks ended in the green and 26 in the red with M&M as the worst performer and NTPC best. Bajaj Finance, IndusInd Bank, YES Bank and Hero MotoCorp too joined on the losers list, slipping up to 5 per cent.

The BSE Midcap index declined 1.99 per cent and the BSE Smallcap index ended 1.83 per cent lower, underperforming benchmark Sensex.

Going by the buzz on Dalal Street, here are four key factors hurting market sentiment:

FPI concerns: Thursday was the 13th straight session when foreign portfolio investors cut exposure to domestic stock. In fact, Thursday’s selloff at Rs 1,405 crore was worst since the Rs 1,449 crore FII outflow recorded on June 6, NSE data showed. Finance minister Nirmala Sitharaman on Thursday stuck to her Budget proposal and declined to relent to demands by FPIs structured as trusts that they be exempted from the higher income-tax surcharge. She said they should adopt a corporate structure to avoid the levy. She said the government believed the richest should contribute more to society and nation building.

Selloff in financial, other rate sensitive stocks: Among the top seven contributors to the Sensex fall in terms of points, five were from financial sectors. Bajaj Finance plunged 5 per cent, IndusInd Bank 3 per cent, SBI 1.7 per cent, HDFC 1.6 per cent and Kotak Mahindra Bank 1 per cent. Auto stocks also took a beating, with M&M, Tata Motors, Hero MotoCorp and Bajaj Auto falling up to 3 per cent.

Anxiety over Q1 results: The June quarter earnings season has not started the way investors had expected. On Friday, India’s most-valued company in terms of market capitalisation Reliance Industries was expected to post muted profit growth for the quarter amid challenges in refining and petchem segments. IDBI Capital expects gross refining margins (GRMs) to decline to $8.2 a barrel from $10.5 a barrel in Q1FY19 while petchem may margin may decline to 18 per cent from 19.5 per cent. RIL shares traded 0.63 per cent lower at 1 pm. The third most-valued firm HDFC Bank will report earnings on Saturday. Shares of the lender were down 1.16 per cent.

Fed’s U-turn: Asian stocks had opened higher in morning trade after New York Fed President John Williams suggested overnight that there was a need to add stimulus early to deal with too-low inflation “when interest rates are near zero and cannot wait for economic disaster to unfold”. That said, in an unusual move, a New York Fed representative later clarified that the speech was academic in nature, based on 20 years of research, and “not about potential policy actions” at the Fed’s rate-setting meeting on July 30-31. The development dented hope of policy easing in the world’s largest economy.

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