MARKETS KICK OFF FY21 IN THE RED
Analysts say there are no triggers to boost near-term sentiment
MUMBAI: Indian stock markets started financial year 2021 on a weak note, with benchmark indices falling around 4% on Wednesday.
Investors have turned very cautious as the number of covid-19 cases in India are rising and the US has also warned that there could be a surge in infections, analysts said.
The BSE Sensex ended at 28,265.31, down 1,203.18 points or 4.08%, while the Nifty was at 8,253.80, down 343.95 points or 4%. Other markets in Asia including Japan, China, Hong Kong and Korea closed up to 4.50% down.
US President Donald Trump has warned of a “very painful” fight against the virus, with the White House projecting 100,000 to 240,000 deaths in the US. India, too, is seeing a sharp rise in infections, with the highest number of patients recorded so far in Maharashtra.
The confidence of investors is eroded by the mounting fear of a global recession, rising cases of covid-19, and weak macros leading to selling in the global markets, including India. There are also no fresh positive triggers that can boost investor sentiment in the near-term, warned analysts.
Tuesday’s interest rate cut in schemes such as public provident fund, Kisan Vikas Patra, National Savings Certificate, and Small Saving Schemes indicates that the fiscal deficit will rise significantly, said Shrikant Chouhan, executive vice-president, equity technical research, Kotak Securities.
“In such a scenario, the financial sector turns vulnerable and today, we witnessed a similar trend in the market. On the other hand, rising coronavirus cases is keeping the world markets on tenterhooks. Technically, Nifty has broken the level of 8,240 on an intraday basis, which is negative and may lead to further weakness in the market,” Chouhan said.
Interestingly, India volatility index (VIX) fell 6.76% on Wednesday. Typically, VIX and stock markets have an inverse relation. MSCI’s deferral in changes in India’s weight would cost the country dearly as it was expecting a massive inflow of $15-16 billion of equity inflows in May 2020, said Ajay Bodke, chief executive officer, PMS, Prabhudas Lilladher.
“With policy makers in all countries, including the US, unveiling unprecedented monetary and fiscal measures to stabilize markets, it is absolutely necessary for the Indian government and regulators to immediately reach out to MSCI and make the necessary changes as sought and convince them to reverse the deferral,” Bodke said.
“Many marquee stocks like Kotak Mahindra Bank and L&T that were expecting billions of dollars of inflows due to this change were savagely beaten down today because of this deferral by MSCI,” he added.
Earlier in October 2019, the finance ministry had published a circular raising the statutory foreign portfolio investor (FPI) limit of Indian companies to the sectoral foreign investment limit, effective April 1, 2020.
The circular also provided an option for companies to restrict their respective FPI limits to a lower threshold, with the approval of the company’s board of directors and its general body, before March 31, 2020.
MSCI, a provider of researchbased indexes and analytics, has said it will wait for the implementation of these changes and the systematic publication of the new sectoral limits before making any changes to the MSCI Indexes.
Meanwhile, the rupee ended at 76.28, down 0.86 paise, while the 10-year government bond ended at 6.14%, down 7 basis points.
BofA Securities continues to expect RBI’s forex accretion to keep speculative attacks on the rupee at bay.
“It will also likely try to augment forex flows by incentivizing exporters to bring back proceeds, raising the cost of import finance and hiking rupee NRE/FCNR deposit rates. Our FX strategists see ₹76 per dollar in June,” it said.