Sensex nears correction territory

The Sensex is around 9.7% down from an all-time high of 36,443.98 on 29 January.

India’s benchmark stock market index, the BSE Sensex, is entering the so-called correction territory. It closed at 32923.12 on Monday, around 9.7% down from an all-time high of 36,443.98 on 29 January. A fall of 10% or more is considered a correction.

People walk by the Bombay Stock Exchange (BSE) in Mumbai.(Kunal Patil/HT File Photo)

On Monday, Indian markets extended their decline with benchmark indices losing nearly 1% ahead of the two-day Federal Open Market Committee meeting in the US starting Tuesday night. The Sensex closed at 32,923.12 points, down 0.76%; the Nifty closed at 10,094.25, down 0.99%, below 10,100 for the first time since 6 December.

Since the Budget, the Sensex has fallen 8.46%.

Analysts said investors are also nervous due to uncertainty around current political developments, while the local macroeconomic situation is not improving. India’s current account deficit (CAD) widened to 2% of gross domestic product, or $13.5 billion, in the December quarter, up from 1.4%, or $8 billion, a year ago.

According to Amar Ambani, partner and head of research, IIFL Investment Managers, a higher CAD hurt investor sentiment, but other local problems relating to the Punjab National Bank fraud and the regulator barring banks from issuing letters of undertaking have also had an impact.

“Investors are increasingly worried about the 2019 general election after the UP by-polls results rattled sentiments,” he added.

Last week, the ruling Bharatiya Janata Party lost two key parliamentary seats it held in Uttar Pradesh.

Ambani said the Nifty may further correct by 3-4% and warned it could soon touch 9,700 points.

In a note on Monday, Kotak Institutional Equities said the surprising defeat of the BJP in the Uttar Pradesh by-polls and the Telugu Desam Party’s announcement to pull out of the BJP-led National Democratic Alliance will likely increase speculation about the nature of pre-poll alliances for the 2019 general election and the nature of the centre’s policies over the next 12 months.

Investors will also be watching the outcome of the US Federal Reserve’s monetary policy meeting on Wednesday. After hawkish comments by new chief Jerome Powell, the US central bank is expected to increase rates faster than earlier anticipated. US rate increases generally lead to outflow of foreign funds from emerging markets considered to be riskier assets.

Some analysts such as Vinod Karki, vice-president (strategy) at ICICI Securities Ltd, do not see any impact on foreign funds despite rate hikes by the Fed. “Right now, Indian markets are weighed by global concerns about the trade war threat while introduction of long-term capital gains tax, high valuations and election uncertainties are causing jitters among investors,” he said.