Weekly Wrap: Sensex, Nifty Resume Fall On Macro Concerns

Indian equity benchmarks resumed their weekly declines as investors remained cautious on lower second-quarter corporate earnings due to the ongoing slowdown.

The S&P BSE Sensex fell 0.9 percent this week to 36,981.77 and the NSE Nifty 50 fell 0.7 percent during the period to 10,946.20.

“The Indian markets continued to remain weak in September on concerns related to the ongoing economic slowdown,” Kotak Securities’ Sanjeev Zarbade said.

Zarbade expects “reasonable valuations” in mid-cap stocks and positive returns with a two- to three-year period.

Ajay Srivastava, managing director at Dimensions Corporate Finance Services, however, was cautious of mid- and small-cap stocks and suggested investors to have a large-cap stock in the sectors they are interested. “Mid and small caps are not looking good fundamentally and economically. Investors need to stick to large caps as they are the only ones which will grow,” he told BloombergQuint in an interaction earlier this week.

The markets will witness a turnaround only after foreign portfolio investors turn substantial buyers, Srivastava said, adding that domestic investors are already over-invested. “The markets will not witness a turnaround by any upcoming government policies.”

“Investors need to wait for buying trigger by overseas investors. That will give confidence to re-balance portfolio,” he said.

Foreign investors sold over Rs 30,000 crore since July 5, when Finance Minister Nirmala Sitharaman, in her maiden Budget, increased tax on the super rich, including foreign portfolio investors and alternative investment funds that plough in funds through non-corporate structure or trusts.

Of the Rs 30,000 crore, overseas investors sold over Rs 9,300 crore in the last two weeks even after the finance minister on Aug. 23 decided to rollback enhanced surcharge levied on FPIs.

Morgan Stanley Lowers Sensex Target

Morgan Stanley has cut its target for Sensex to 40,000 from 45,000 and its earnings per share growth for the ongoing financial year to 13 percent from 19 percent, according to Ridham Desai, the brokerage’s head of India equity research and India equity strategist.

“Reflecting a weaker global backdrop as well as growing reflexivity risks from share prices to fundamentals, we cut our earnings estimates for 2019-20 and our Jun-20 index target,” Desai wrote in a note.

How The Broader Markets Performed

The broader markets, represented by the NSE Nifty 500 Index, fell 0.64 percent this week, dragged by the fall in Coffee Day Enterprises Ltd., Indian Bank and Reliance Communications Ltd.

Eight of the 11 sectoral gauges compiled by National Stock Exchange ended lower this week, led by the NSE Nifty Realty Index’s 4.83 percent fall. On the flip side, the NSE Nifty Metal Index was the top sectoral gainer, up 2.96 percent.

How The Currencies Performed

The Indian rupee depreciated 0.45 percent this week against the U.S. dollar to end at 71.72. The home currency was the second-worst performer among Asian peers during the period.

Big Talking Points This Week

• RBI asks banks to link retail, SME loans to an external benchmark from Oct.1
• Robert Mugabe—Zimbabwe’s hero who turned villain, dies at 95.
• Ambani’s Reliance Jio rolls out JioFiber broadband starting at Rs 699 a month.
• Ray Dalio sees 25% chance of recession this year and in 2020.
• Auto dealers brace for subdued festive sales amid slowdown.
• Q1 GDP: Even an expensive election failed to boost growth
• U.S. manufacturing gauge contracts for first time in three years.
• The Silicon Valley heavyweights who want to settle the moon
• Government, LIC to infuse more than Rs 9,000 crore in IDBI Bank
• Boris Johnson ‘would rather be dead’ than delay split: Brexit update.

Key Data To Watch Next Week

• Sept. 11-30: Balance of payments: Current account balance data.
• Sept. 12: India CPI inflation data for August
• Sept. 12: India IIP data for August
• Sept. 12: India trade data for August