The immediate reasons for the souring of sentiment seem to be global.
After scaling new highs — the BSE Sensex recently surpassed the 85,000 mark — stock markets in India have shown signs of weakness. Last Thursday, the markets tanked. The Sensex fell by 1,769 points or 2.1 per cent. The weakness continued on Friday with the index falling by almost 1 per cent. Over the course of the last five trading days, the Sensex fell by almost 5 per cent. The BSE Midcap index was down 3.1 per cent, while the Smallcap index has fallen 2.3 per cent. The Nifty VIX, a fear gauge, was up 19 per cent over this period, indicating growing investor uncertainty.
The immediate reasons for the souring of sentiment seem to be global. There are worries over the conflict in the Middle East escalating with the opening up of several fronts — the pager attack, the killing of a Hezbollah leader in Beirut, and the missile attack on Israel, among others. Fears that Israel might target Iran’s oil infrastructure, which would bring down supplies in the global market, have gained traction. There are concerns that the conflict could spill over, disrupting key trade routes, especially the Strait of Hormuz through which roughly a third of the global crude oil supply is estimated to pass. Crude oil prices have surged during this period of uncertainty — Brent crude futures were up around 8.7 per cent over the past week. Then there is the China factor. Recently, authorities in China announced a series of measures to support a struggling economy. The People’s Bank of China lowered its policy interest rate from 1.7 per cent to 1.5 per cent. It cut the reserve requirement ratio, and announced tools to support the stock market. The announcements have lifted sentiments, and considering, also, the attractive stock valuations, there is growing investor interest. The Shanghai Composite Index was up 20 per cent last week, while the Hang Seng was up 11.2 per cent. This renewed interest in Chinese stocks is leading to a rebalancing of portfolios. Foreign investors have been pulling money out of India. As reported in this paper, over the last four sessions, they have sold more than Rs 37,000 crore worth of shares, offloading Rs 9,897 crore on Friday alone. During this period, the stock market regulator in India announced measures to curb trading in the Futures and Options segment.
In the days and weeks ahead, on the domestic front, both political and economic factors could have a bearing on the markets. The outcome of the assembly elections in Jammu and Kashmir and Haryana, the first meeting of the reconstituted monetary policy committee, and the corporate results season could influence stock prices.
