The Sensex and Nifty ended slightly up on Friday, but the market witnessed a third consecutive weekly fall on continued concerns over slowing reforms and weak monsoon.
The BSE Sensex gained 0.21% for the day, but it fell 1.3% for the week. The Nifty rose 0.22% but fell 1.5% for the week.
About half the constituents of the Sensex are trading at lower levels than a year ago, with the downturn spread across banking, packaged consumer goods, infrastructure, auto and oil.
Hindustan Times spoke to market analysts and listed five reasons why the markets were down over the past few weeks.
1. Poor corporate earnings: The average corporate earnings growth was just about 5-6%, which is much lower than what the stock prices justified. The growing feeling is that a recovery in the profitability of companies is still some way off. There was expectation that the recovery could be in the first half ( April-September) of the financial year, but that has been pushed back to the second half bt brokerages.
2. Forecast of deficient monsoon: The Indian Meteorological Department downgraded its prediction of this year's monsoon to "deficient", which is about 88% of the long-term average. This is likely to result in food inflation, especially with perishable commodities like vegetables. The government may infuse a Rs 500 crore market stabilisation fund but this is unlikely to pull down prices a great deal. The crisis in the agriculture sector because of a weak monsoon could also turn a lot of bank loans into non performers
3. RBI's hawkish stance: The Reserve Bank has so far cut the repo rate by only 75 basis points , while the markets expected as much as 150 basis points. RBI governor Raghuram Rajan's hawkish tone on inflationary pressue spooked investors. Uncertainty over monsoons and rising crude prices seem to be non-conducive for further cuts in interest rates in the immediate future.
4. Delay in passage of key bills: Market sentiment remains down because of the delay in the passage of the Goods and Services Tax (GST) and land acquisition Bill in Parliament. The government’s decision to refer two crucial bills to a House panel did not go down well with global investors as this gave the signal that the government is facing challenges in implementing its reform agenda despite its strong majority. Investors were also looking forward to things like a single window clearance for projects
5. China market rally; Korea and Taiwan as alternate destinations: Foreign portfolio investors took a fancy to Chinese markets and for the first time in seven years the Shanghai Composite Index crossed 5000. Luckily for investors the losses did not get very big as global stock index compiler MSCI decided to defer including Chinese A shares in its emerging market benchmark share indexes. However some traders said the China factor was mostly a hype and that their economy is still soft and very commodity-driven. Overall, the migration to these markets was not a huge cause for alarm.