Ghost Of 2008 Haunts D-Street As FIIs Continue To Sell

Wednesday, 6th May 2015 proved to be a day of heavy sell off as Indian markets slipped upto 2.74% and closed below 8100 levels which was a major psychological support.

"In our view, the exhilarated expectations from change of guard at the center seem to be wearing as earnings growth rebound has failed to materialise," said Dhananjay Sinha, head of institutional research at Emkay Global Financial Services in a note.

"Index correction can be led by sectors that have reached rich valuations, notwithstanding consistent rise in earnings and market weightage viz. Banking (private banks), Pharma and Autos. We look to pick up strong names on declines," he adds.

Hitesh Agrawal, head of research at Reliance Securities expects this weakness to continue in the near-term considering the ferocity of the correction and also the fact that there are unlikely to be any near-term triggers supporting the market.

"Thus, while short-term investors need to look for opportunistic trades in this market, the medium-to-long-term investors should continue to load onto quality companies. For now, the Nifty looks set to test 7,900 – 7,950 band in the coming few days," he says.

Broader markets, too, lost considerable ground on Wednesday with both the BSE Mid-cap and Small-cap indices closing 3.3% and 3.1% lower, respectively.

Wednesday's fall was also partly attributed to algorithm, or algo-based trades according to reports, besides the following reasons.

Analysts attribute today’s fall to:

IPO wave in China: In early April 2015, China’s securities regulator approved 30 new initial public offers (IPOs), widely seen as a move to cool the booming stock market.

Reports suggest that 28 among the 30 companies published their share issue prospectuses in early April and were expected to launch the IPOs over the next two weeks.

“One of the important reason for fall could be FII withdrawing funds for investing in IPO in China. $175 billion of IPOs are lined up this week. Money invested in them would lock up liquidity. They are pulling out funds from other markets," said Deven Choksey, managing director & chief executive, K R Choksey Securities.

According to reports, over 20 companies are scheduled to go public on Chinese markets starting today until the beginning of next week. The Shanghai Composite Index in mainland China lost 4.1% to close at 4,298.71, Hong Kong's Hang Seng lost 1.3% to 27,755.54.

Rally in crude oil prices: Brent crude oil prices hit $67.66 a barrel, with US crude not far behind at $60.71 in trade on Tuesday, touching its highest level in 2015. Rising oil prices are seen as a negative for India, which imports a large chunk of oil to meet requirements.

In a recent interview to Business Standard, Marc Faber, a renowned global investor and author of 'The Gloom, Boom & Doom' report expects the oil prices to find equilibrium between $40 - $70 a barrel.

Passage of crucial bills stuck in Parliament: Another reason foreign investors are looking at other global markets is the slow pace of reforms. Choksey feels that the inactions on crucial bills like land acquisition bill is resulting in global investors developing cold feet on India, at least for now. The Lok Sabha on Wednesday, however, passed the GST Bill

G. Chokkalingam, founder & managing director, Equinomics Research & Advisory also suggests that the foreign investors, over the past few weeks had been expecting more concessions from the government in terms of tax related issues besides the relief granted over the minimum alternate tax (MAT) issue.

Tax on subsidies: There is a surprise element of tax on subsidies in Finance Bill, which was recently passed. The government has decided to tax all central and state subsidies and grants.

"This was not in the Finance Bill tabled earlier. The recent amendment brings both capital and revenue subsidies to tax. It’s counterintuitive – a subsidy is an incentive, and taxing it reduces its full benefit. The purpose of the government was to develop a backward area, a state, to promote any industry etc, then all such grants are capital in nature and not liable to tax. What this amendment seems to do is to give subsidy of Rs 100 and tax Rs 35 out of it. As far as investors are concerned, complications are counter productive and takes away the ease of doing business. It is clear that intention of Government for bringing ease of doing business are not matched with actions on ground," Choksey says.


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SauriN PateL
May 8, 2015 at 3:34 PM delete

Please advise on ratnamani tube and metal. .

May 8, 2015 at 8:17 PM delete

today's move is due to disappointing results long term fundamentals are bullish in ratnamani metals and tubes watch out for support at 600 levels................ regards