Indian equity benchmarks whipsawed on Tuesday, a day after posting the biggest single-day decline in two months amid global market uncertainty.
After rising 1,093 points (1.4 per cent) during the day, the Sensex gave up its gains, ending the session at 78,593 with a decline of 166 points (0.2 per cent). The index came off 1,259 points (1.58 per cent) from the day’s high of 79,852 as the global rebound fizzled.
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The decline in Indian markets contrasted with the recovery in other Asian markets. Japan’s Nikkei rose 10.2 per cent after declining 12.4 per cent. Except for Hang Seng, most Asian indices recovered, with South Korea and Taiwan gaining more than 3 per cent. However, European markets slipped into the red after opening higher.
Foreign portfolio investors (FPI) were net sellers of Rs 3,531 crore, while domestic institutions bought shares worth Rs 3,358 crore.
Indian equities are likely to remain subdued as valuation concerns persist and uncertainty lingers about the impact of the unwinding of the Yen carry trades and the trajectory of US rate cuts. Traders in the US reduced bets on an emergency cut by the US Federal Reserve and some insured their portfolios against an extreme crash.
“The concerns haven’t gone away yet. People are going to wait and see how the next few days pan out. The selloff comes at a time when valuations, not just in India, but globally as well, are stretched,” said Andrew Holland, chief executive officer of Avendus Capital Public Markets Alternate Strategies.
Despite the recent correction, Indian equity valuations remain elevated. The Nifty is trading at a trailing twelve-month (TTM) price-to-earnings (PE) ratio of 23.6 against a 5-year average of 24.7, while the Nifty Midcap 100 is trading at a TTM PE of 41.7 against its five-year average of 36. The Nifty Small Cap 100 is trading at 31.1 against a five-year average of 30.4.
Equity markets in India and globally were rattled by the prospect of a potential US recession and the unwinding of Yen carry trades.
A US jobs report on Friday revealed a slowdown in hiring. The unemployment rate rose to 4.3 per cent, the highest in three years, marking the fourth consecutive monthly increase. The rising jobless rate has heightened fears of an impending recession. The reversal of Yen carry trades after Japan’s central bank raised interest rates also increases concerns about potential outflows from major equity markets.
“If job losses continue to trend higher or financial conditions tighten significantly, the Fed could become more reactive, raising the likelihood of 50-basis point cuts. Markets have already reacted, with a sharp drop in US two-year and 10-year yields, a steeper curve, a weaker dollar index, lower equities, and tighter financial conditions overall,” said a note by Nomura.
Market breadth was weak, with 2,454 stocks declining and 1,482 advancing. HDFC Bank, which fell 0.8 per cent, was the biggest drag on the Sensex, followed by Bharti Airtel, which fell 1.5 per cent. Textile stocks rose as they are expected to benefit from the political unrest in Bangladesh.
First Published: Aug 06 2024 | 11:57 PM IST
