Equities dive on political worries, robust IPO market, PSB doubts
Indices plunge as TDP quits NDA, vibrant primary market diverts investor interest
MUMBAI: Benchmark equity index Sensex plunged more than 500 points on Friday, after the Telugu Desam Party (TDP) finally decided to quit the National Democratic Alliance (NDA), and a vibrant primary market diverted some investor interest.
The BSE’s 30-share Sensex shed 1.51%, or 509.54 points, to close at 33,176 points, while the National Stock Exchange’s (NSE’s) 50-share Nifty declined 1.59%, or 165 points, to close at 10,195.15 points. For the week, they are down 0.39% and 0.31%, respectively.
Earlier in the day, the Sensex fell as much as 1.68%, or 565.62 points, to 33,119.92, while the Nifty slumped as much as 1.74%, or 179.90 points, to 10,180.25.
“Politically, the situation got a little difficult with the TDP pulling out of NDA, and triggered today’s fall in the market,” said Hemang Jani, senior vice-president and head of advisory desk at Sharekhan by BNP Paribas.
“The recent by-poll results also hint at some amount of uncertainty, and raise doubts whether the current government can make it back to the centre again next year,” Jani said.
“There are also concerns that economic growth may not be as expected due to doubts on the performance of PSU (public sec- tor undertaking) banks, in terms of loan growth,” he added.
Jani further said that a robust primary market was diverting some interest away from the secondary market.
Primary market issuances worth ₹15,000 crore have already been announced this month and a couple more, such as Lemon Tree Hotels’ initial public offering, are in the pipeline, according to bankers.
Market breadth was weak on Friday as losers were nearly twice the number of gainers on the BSE.
The BSE Metals index and BSE Oil &Gas index dipped the most and were down 2.3% and 2.1%, respectively.
Foreign institutional investors (FIIs) and domestic institutional investors (DIIs) were net sellers of Indian shares to the tune of ₹150.46 crore and ₹770.53 crore, respectively, according to provisional data from NSE.
Valuation discomfort has also ruled heavily on investor sentiment, with little clarity on when corporate earnings will pick up.
“Valuations are not comfortable as there is no clarity on when concrete earnings growth will come by, and that is a bother,” said Dhananjay Sinha, head of research at Emkay Global Financial Services Ltd.
The Sensex trades at 17.60 times one-year forward earnings, at a premium of 12.03% over its five-year average of 15.71 times, and 15.52% over its 10-year average of 15.24 times.
While analysts expect earnings growth to turn around, it has been difficult to pin down a timeline with certainty for the same.
With uncertainty still looming, prices look stretched.
In Friday’s trade, mortgage lender Housing Development Finance Corp. Ltd and HDFC Bank Ltd shed 2.2% and 1.2%, respectively, contributing the most to Sensex’s losses.
Indices plunge as TDP quits NDA, vibrant primary market diverts investor interest.