SENSEX SLIDES, RUPEE FALTERS
MONDAY BLUES The Sensex cracks 467.65 pts to end at 37,922.17, while the Nifty dips 151 pts to end at 11,438.10
MUMBAI: The Indian markets slipped over 1% on Monday tracking weak Asian markets, as trade tension between the US and China lingered, while domestic macros continued to weaken. The Sensex ended at 37,922.17, down 467.65 points, or 1.22%, while the Nifty ended at 11,438.10, down 151 points or 1.30%. This is sharpest one-day loss in six months.
US President Donald Trump said he was ready to impose tariffs on an additional $267 billion worth of Chinese goods on short notice, besides the proposed $200 billion Chinese imports. The August jobs report showed a healthy US labour market, indicating signs of wage inflation, which could clear the way for the US Federal Reserve to hike interest rates at least twice this year.
Hike in global interest rates may also push the dollar higher, triggering sell-offs by foreign institutional investors (FIIs). So far this year, FIIs have sold Indian equities worth $424.79 million, while domestic institutional investors (DIIs) have been net buyers of ₹70,820.99 Indian shares.
However, Indian markets have outperformed emerging markets, with the MSCI Emerging Markets Index declining 11.69%, while the MSCI World Index gained 1.62%.
The rupee on Monday closed at a record low against the US dollar, while 10-year government bond yields jumped nearly 13 basis points after current account deficit (CAD) widened to a fiveyear high, stoking concerns of a fiscal slippage. The current account deficit widened to $15.8 billion in the April-June quarter due to a larger trade gap. The CAD widened to 2.4% of gross domestic product (GDP) in AprilJune, from 1.9% of GDP in January-March, data released on Friday showed.
Jagannadham Thunuguntla, senior vice-president and head of research (wealth), Centrum Broking Ltd, said persistent weakness in the rupee is starting to show its impact on all asset classes, including equities. “The ‘sentiment risk’ is now the major challenge for stock markets. At this time, investors need to be careful and try to get into exportoriented sectors and zero-debt firms, given the bond yields have also sharply risen to 4-year highs.” According to Morgan Stanley, key risks for the economy are external headwinds such as a stronger dollar and tighter global financial conditions.
“While domestic conditions remain supportive of a sustained growth recovery, we note the general election in May 2019 could impart some uncertainty. On external front, risks could stem from adverse impact of trade protectionism on global growth and continued dollar strength forcing RBI to tighten monetary conditions more than warranted by domestic factors,” it said in a note on September 9.
UBS said tighter financial conditions, high oil prices, slowing global growth and a still muted private corporate capex recovery on legacy issues of high debt and weakened balance sheets will weigh on growth momentum.
Bloomberg contributed to this story.