Stocks slump as IndoPak border tensions escalate
TAKING A HIT Midcap, pharma, staterun banks and realty stocks lead decline
Indian stocks fell sharply on Tuesday after the army said it hit posts in Pakistan-controlled Kashmir that were providing cover for terrorists planning attacks.
Midcap, pharmaceutical, state-run banks and realty stocks led the decline.
The National Stock Exchange’s Nifty index shed 0.55% to 9,386.15 points while the Sensex ended 0.67% lower at 30,365.25 points.
The markets are extremely volatile because of the expiry of the May series Futures and Options (F&O) on Thursday and the border tension has heightened the nervousness, analysts said.
The weakness is because of selling especially in midcaps and PSU banks, said Ashu Madan, president of equity broking at Religare Securities Ltd.
Among PSU banks, SBI declined 1.7%. “The markets were in an over-bought zone. Throughout the day, the markets were already volatile while border tension added to the jitters.”
BSE Midcap and BSE Smallcap indices, which had hit record highs in April, ended down 1.5% and 1.6%, respectively.
Still, the BSE Midcap index has gained 18.4% and BSE Smallcap jumped 21.9% in 2017, outperforming benchmark indices.
The Sensex was up 14.04% while the Nifty added 14.66% year to date.
Stretched valuations of midcaps and rising risk perception due to global political turmoil lead to a fall in markets, said Prateek Agrawal, chief investment officer at ASK Investment Managers.
“Possibility of US President Donald Trump’s impeachment and the situation in Brazil have caused bigger worries in the markets,” he said.
However, he expects the markets to bounce back as the government implements reform measures such as the goods and services tax (GST).
Vinod Nair, head of research at Geojit Financial Services Ltd, said that investors have become cautious because of the rise in tension at the India-Pakistan border.
“Additionally, higher-thanexpected goods and service (GST) rate especially for consumer-oriented durables is impacting the markets. Pharma continued to taste bitterness in earnings due to high competition.”
Among sectoral indices, BSE Healthcare was the biggest laggard, declining 2.7% on Tuesday. Sun Pharma lost 4.3%, hitting a six-month low after its US unit, Taro Pharmaceutical Industries Ltd reported disappointing January-March quarter earnings.
According to Reuters, Taro Pharmaceutical Industries reported a 25.9% fall in net sales for the March quarter. The US unit accounts for about one-fifth of Sun Pharma’s revenue and profit.
Meanwhile, shares of debtladen companies declined as the Reserve Bank of India (RBI) firmed up plans to resolve bad debt problems.
In an announcement on Monday, the central bank announced it would make necessary changes to current guidelines for restructuring of stressed loans after a review.
Among such companies, shares of Videocon Industries fell by the daily maximum 20% on Tuesday, extending a similar fall on the previous day. Shares of Bhushan Steel lost 10.3%, JP Associates fell 9.88% and Reliance Defence slipped 4%, among others.
“Having seen defaulters nonpaying to the banks, the RBI has spelled out liquidation process for recovery of these loans which poses a threat to investors and other creditors,” said Deven Choksey, managing director of KR Choksey Investment Managers.
He said this time the RBI would make sure that the defaulter companies don’t go the Kingfisher way.
“We believe that the recent crash on the stock price of company could be due to classification of Videocon’s loan as nonperforming asset by Dena Bank,” Videocon said in response to a query.
Dena Bank had earlier said that it had classified Videocon’s loan amounting to ₹520 crore as non-performing.