Markets brace for a Black Tuesday Will Indian markets spook FIIS?
DOUBLE TROUBLE Patel’s resignation, election results to keep markets on edge
FIIS BOUGHT SHARES WORTH $868.37 MN IN NOV, WITH OIL PRICES CORRECTING OVER 20% SINCE OCT. HOWEVER, FIIS SOLD SHARES WORTH $31.67 MN IN DEC
MUMBAI: Markets braced for a deep dive on Tuesday after crashing on Monday over the abrupt resignation of Reserve Bank of India (RBI) governor Urjit Patel, coupled with jitters in anticipation of assembly election results from five states. The Dow Jones index opened nearly 1% lower, while futures on the Nifty index in Singapore fell as much as 1.7%, signalling a lower opening for Indian markets on Tuesday.
Stocks, bonds and the rupee fell on Monday after exit polls of assembly elections in five states projected a likely setback for the Bharatiya Janata Party (BJP). The Sensex closed at 34,959.72 points, down 713.53 points or 2%, while the Nifty closed at 10,488.45, down 205.25 points or 1.92%. Investors took cues from the Asian markets as well, where the Nikkei fell 2.12%, Hang Seng 1.19%, and the Shanghai Composite 0.82%. These markets fell after data showed the trade dispute with the US is beginning to hurt the Chinese economy.
Exit polls released after market hours on Friday projected the BJP losing power in Rajasthan and facing a tight finish in Madhya Pradesh and Chhattisgarh— three states where it is in power. Results for Rajasthan, Telangana, Madhya Pradesh, Mizoram and Chhattisgarh will be announced on Tuesday, and are widely seen as an indication of the public mood ahead of general elections next year. Monday’s shock resignation of Patel, following a prolonged stand-off between the RBI and the government, has added to the uncertainty. The centre has been seeking to reduce curbs on lending, and gain access to RBI reserves.
Vinod Karki, vice president, strategy, at ICICI Securities Ltd, said, “It is clearly a negative surprise for the markets and there could be a sharp reaction on Tuesday. It also gives the wrong signals to global investors. Anyway, state election results are expected to keep markets very uncertain on Tuesday. Broadly, I feel markets may test the bottoms that we hit this year. Hopefully, that support level should stand.”
Markets have been volatile this year as crude prices soared and the rupee fell, further delaying a much-awaited corporate earnings revival. The lowest levels for the Sensex and Nifty this year were at 32,483.83 and 9,951.9 on March 23. Ajay Bodke, chief executive officer and chief portfolio manager (PMS) at broking firm Prabhudas Lilladher, said Patel’s resignation may cause a temporary flutter in the markets already on tenterhooks over assembly election results. “Global headwinds like escalating trade war between the US and China, Britain’s parliamentary vote on Brexit and fears of a slowdown in global economic growth in 2019 have already led to a sharp spike in risk aversion for risk assets like equities,” said Bodke.
The rupee and bonds were under pressure, partly due to a wider current account deficit (CAD) and the surge in crude oil prices. India’s CAD widened to $19.1 billion or 2.9% of gross domestic product (GDP) in JulySeptember, from $15.9 billion or 2.4% of GDP in the April-june quarter and 1.1% of GDP in the year-ago period. That gap was lower than a median $19.9 billion deficit predicted in a Bloomberg survey of 12 economists.
The rupee ended at 71.34 a dollar, down 0.74% from its Friday’s close of 70.81. The currency opened at 71.31 a dollar and touched a high and a low of 71.24 and 71.45 respectively. The 10-year government bond yield closed at 7.587% from its previous close of 7.464%.
(Ravindra Sonavane contributed to this story) MUMBAI: Foreign capital inflows into Indian equities may be at risk following Urjit Patel’s surprise move to resign as the Reserve Bank of India (RBI) governor on Monday, after market closing.
Foreign institutional investors (FIIS) may continue to dump Indian shares, which made a comeback last month, according to analysts. FIIS bought Indian shares worth $868.37 million in November, with crude prices correcting over 20% since October. However, FIIS sold shares worth $31.67 million in December. In 2018, they have been net sellers of Indian shares worth $4,921.45 million. “RBI governor Urjit Patel’s resignation is unfortunate, but I am sure the government will soon find a successor. If it is beyond personal reason, as citedbyhim,itwillbeabitofa worry for both global and foreign investors, as to why the government and an institution like the RBI can’t work together,” said an equity analyst, requesting anonymity.
Domestic institutional investors (DIIS) have also been on the edge in the past two months with uncertainties around state elections and crude prices looming large. DIIS, including mutual funds and insurance companies, which have pumped in hefty amounts in equities despite the turbulence, were net sellers in December so far. They have bought Indian shares worth only ₹800.30 crore in November and sold ₹ 2,266.64 crore in December. However, in 2018 DIIS have bought shares ₹1.06 lakh crore.
Net inflows into domestic equity mutual funds fell 33.33% to ₹8,414 crore in November from the previous month, the lowest since August, according to the Association of Mutual Funds of India data.
However, VK Vijayakumar, chief investment strategist, Geojit Financial Services, said once the critical issues die down markets will stabilize. “The market is presently being impacted by the global sell-off and domestic political concerns. Once these issues die down, the market will stabilize. The resignation of the RBI governor is a short-term sentimental negative. However, this is not likely to impact the economy and the market beyond the very short term, provided we get a good reputed person as a replacement,” Vijayakumar said.