Global trade war spooks markets; Sensex slumps

Index dips 1.2%, Nifty lowest since Oct; foreign investors step into limit losses

The Indian markets came under pressure on Friday amid a sell-off in global equities due to escalating trade tensions between the US and China. The feud between the two largest economies of the world raised concerns of slowing global economic growth and weak corporate earnings.

Hours after President Donald Trump announced the US’ plans to impose tariffs on $60 billion worth of annual Chinese imports, Beijing retaliated by unveiling tariffs on $3 billion worth of US imports.

The move hit equity assets hard with markets across Asia, Europe, and the US tumbling up to 4 per cent. Losses posted by Indian markets were relatively moderate due to the surprise buying support from overseas investors.

The NSE Nifty fell below the 10,000 mark for the first time since October 9. It ended at 9,998, down 1.15 per cent. The Sensex declined 410 points, or 1.24 per cent, to 32,597, its lowest close since December 5.

The Indian markets have been under pressure due to high oil prices, political uncertainty, and frauds at public sector banks. The Sensex is down 10 per cent from the record highs of January.

“Tariff wars have made investors jittery. The markets could fall further. Global developments and domestic political uncertainty have made stocks volatile. However, the correction gives an opportunity for investors to make long-term bets,” said Ravi Muthukrishnan, head of institutional research, Elara Capital.

Despite the sharp correction, foreign institutional investors emerged as strong buyers, even as their domestic counterparts sold shares worth ~9.3 billion on Friday. FIIs picked up shares worth ~16.3 billion, taking their month-to-date buying to ~120 billion. Market players said strong buying by FIIs was a ‘silver lining’ in an otherwise weak environment.

“Volatility in share markets was likely to remain high, but the broad trend could remain up since a global recession was unlikely and earnings growth remained strong globally,” said Shane Oliver, head of investment strategy, AMP Capital.

Shares of companies exposed to global trade felt the heat, with the BSE Metal index declining close to 3 per cent. Banking stocks also saw huge declines on reports of a fresh fraud worth over ~13 billion at Union Bank of India, whose shares fell 8.3 per cent. Among the Sensex firms, YES Bank, Axis Bank, SBI, and ICICI Bank declined the most, between 3 per cent and 4 per cent.

The BSE MidCap and SmallCap indices underperformed the benchmark indices, as nearly 2,150 stocks declined on the BSE, while only 558 advanced. Despite the sharp fall, valuations continue to remain above long-term averages. The Sensex is trading at 17.3 times its estimated 12month forward earnings compared to the 10-year average of 16 times. In January, valuations had soared to around 20 times.

According to Muthukrishnan, investors should need to keep an eye on three key developments: How global trade wars pan out, election outcomes, and the earnings growth trajectory.