Money fuels the stock market engine. On Friday, the Reserve Bank of India sucked Rs 15,000 crore out of the pipeline, and cut flows to a trickle. On Monday, the markets crashed spectacularly, losing Rs 1,50,000 crore worth of paintwork.
More than half the loss in investor wealth — Rs 80,000 crore — was at India’s market bellwether, the BSE Sensex. The index recorded its second-biggest single-day loss, shedding 616.73 points or 4.73 per cent, to close at 12455.37. Friday’s close: 13,072.1.
The 50-share index of the National Stock Exchange, the S&P CNX Nifty, slid 173.5 points or 4.54 per cent, closing at 3648.05.
So, is the dream run over on Dalal Street?
Analysts are divided on how the markets will behave in the days ahead, but they agree that the bulls have run out of steam.
“The fall has been more than expected. Clearly, the sentiment is negative... We hope the Sensex will hold on to above 12,000 levels,” Manish Sonthalia of Motilal Oswal Securities said.
Why are investors bailing out?
The big factor is RBI’s inflation-cutting interest rate hikes. By making credit more expensive, RBI hopes to dampen demand for money, which in turn would slow inflation by reducing the amount of money chasing available goods and services.
But there’s the downside. Higher interest rates dent corporate profitability as their interest costs go up. The higher cost of funds affects capital expansion plans. And consumers are deterred from debt-funded purchases, hitting both sales and profits.
“It is tough to quantify the extent of the impact of the rate hike, but it will definitely affect corporate profitability,” Prasad Menon, MD, Tata Power, said.
Technical analysts say their charts are showing a definite pull towards lower levels, and the markets may be headed for a longish spell in the lower reaches. The derivatives segment, which trades in the future prices of shares and can thus be considered a fair barometer of market sentiment, also shows downward trends.
“We may see a prolonged period of downtrend in the market... Bearishness is quite prominent. Everything points to a negative trend,” said Sidharth Bhamre, derivatives analyst of Angel Broking.