Dalal St Now Wants More

The Economic Times - - Front Page - BISWA­JIT BARUAH

In­vestors didn’t bother to wait for the for­mal an­nounce­ment of Naren­dra Modi’s new coun­cil of min­is­ters on Mon­day, dump­ing stocks across the board af­ter judg­ing that mar­kets were over­bought in the wake of re­cent gains. Bro­kers said op­ti­mism over the al­lo­ca­tion of portfolios in the new govern­ment has al­ready been baked into the price and in­vestors are now await­ing pro-busi­ness pol­icy ac­tion to make the next round of pur­chases. The BSE Sen­sex dropped 459 points in a late-ses­sion sell-off, de­clin­ing from its day’s high of 25,175 be­fore clos­ing at 24,716 points, up 23.53 points, or 0.10%. Nifty ended 0.11% lower at 7,359 points.

The ru­pee weak­ened 0.3% to 58.71 to the dol­lar, the most it has fallen in one day in a month. Mid-cap, small­cap, real es­tate and power stocks, which have been the big­gest gain­ers in the last month or so, dropped the most on Mon­day. “The mar­ket event is over for now, in­vestors want to see real ac­tion on the ground,” said Motilal Oswal, chair­man and man­ag­ing di­rec­tor, Motilal Oswal Fi­nan­cial Ser­vices. “Many stocks have surged be­tween 50% and 200% in the re­cent rally, thus profit book­ing was wait­ing to hap­pen. Hav­ing said that, the longterm fun­da­men­tals of In­dian mar­kets are still in­tact.” For­eign and do­mes­tic in­sti­tu­tional in­vestors were net sell­ers in the mar­kets. FIIs sold eq­ui­ties worth Rs 84 crore on Mon­day, while DIIs sold eq­ui­ties worth Rs 208 crore, ac­cord­ing to ex­change data. In­vestors are look­ing to the new govern­ment to an­nounce strong re­forms to pro­pel eco­nomic growth, with Modi adopt­ing the prin­ci­ple of ‘Min­i­mum Govern­ment and Max­i­mum Gov­er­nance’. “The merger of var­i­ous min­istries is very en­cour­ag­ing as this shows the in­tent of the new govern­ment to move things on the fast track,” said Nir­mal Jain, chair­man, IIFL. “How­ever, in­vestors should re­main cau­tious as I ex­pect mar­ket vo­latil­ity to stay for a while.” To be sure, there seems to be an el­e­ment of ner­vous­ness. The NSE In­dia VIX vo­latil­ity in­dex jumped 12% to 19.84. The Sen­sex has ral­lied over 25% since Septem­ber 13 last year, when the Bharatiya Janata Party named Modi as its can­di­date for prime min­is­ter. The bench­mark in­dex is cur­rently trad­ing at 15.5 times to its one-year for­ward earn­ings, com­pared with the five-year aver­age of 14.6 times. The MSCI Emerg­ing Mar­kets In­dex trades at 10.8 times earn­ings and this high In­dian mar­ket val­u­a­tion is mak­ing some in­vestors wor­ried.

“I would like to hear more about re­forms the new govern­ment has in mind and how it’s go­ing to ex­e­cute,” said Chris Palmer, head of global emerg­ing mar­kets at Hen­der­son Global In­vestors. “One of the things that con­cerns us in the re­cent rally is the fact that com­pa­nies which have been un­suc­cess­ful in the last 510 years have ral­lied the most.”

FIIs have pumped more than Rs 46,000 crore into eq­uity mar­kets so far this year as global in­vestors have built up high ex­pec­ta­tions on In­dia. The new govern­ment needs to take ur­gent mea­sures to tackle eco­nomic chal­lenges and this could make some in­vestors skit­tish re­gard­less of the po­ten­tial long-term gains. For in­stance, the govern­ment will need to strike a bal­ance be­tween pro-growth mea­sures and anti-in­fla­tion tight­en­ing given that the un­der­ly­ing fis­cal sit­u­a­tion may be worse than it ap­pears. The govern­ment needs to ur­gently ad­dress In­dia’s eco­nomic slump amid the threat of an un­cer­tain mon- soon and in­fla­tion ac­cel­er­at­ing. On Mon­day, power sec­tor stocks wit­nessed the max­i­mum sell-off. Bhel fell 4.79% to .` 259.40 while Tata Power ended 4.11% lower at Rs 101.40. Among in­dex heavy­weights, RIL lost 2.38% to .` 1,101, while SBI fell 2.01% to .` 2699.80. Tech­ni­cal traders said mar­kets are in the over­bought zone, hence profit book­ing was bound to hap­pen. The BSE Mid Cap In­dex fell 2.11% to 8,485 points while the BSE Small Cap In­dex fell 2.24% to 8,923 points.

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