19
NEW DELHI: Emergence of selling pressure threw benchmark indices off-balance on Monday.
By 10.30 am, the BSE Sensex plunged over 400 points while NSE barometer Nifty tested the 11,400 mark as global trade war tensions made investors lose their nerve.
The government measures announced this past weekend, which are aimed at stemming rupee's fall and narrowing the current account deficit, failed to sway the investors.
Here are five major factors that unsettled the market on Monday.
US set to impose tariffs on ChinaA senior US administration official told Reuters over the weekend that US President Donald Trump is likely to announce the new tariffs as early as Monday.
An opinion piece in Global Times, the mouthpiece of the Chinese Communist Party, argued that while Washington is extending a carrot to Beijing, it is also swinging a stick.
“It is nothing new for the US to try to escalate tensions so as to exploit more gains at the negotiating table.
The unilateral and hegemonic moves by the US will meet firm countermeasures from China,” the article warned.
Trade worries showed up in Asian markets such as China, Hong Kong, Korea and Taiwan, which have fallen up to 1.5 per cent so far.
Govt's ‘Five-point plan’ fails to move marketsThe Modi government this weekend took stock of the economic situation and announced measures to contain India’s current account deficit (CAD) and attract capital flows, with a ‘Five-point plan’.
But brokerages such as Nirmal Bang Institutional Equities noted that there was not any ‘Big Bang’ announcement and the measures mainly focus on tweaks in policy with an aim to attract capital flows.
“The government through the measures is also encouraging investors (in case of masala bonds) and borrowers to take on exchange rate risk, implicitly signaling that exchange rate stability will be maintained.
Nevertheless, we believe that the rupee will continue to trade with a depreciation bias as these measures will not attract very large capital flows,” the brokerage said.
Rupee sinks after weekend meetIt was Monday blues for the rupee.
The domestic currency today plunged 76 paise to hit 72.61 against the dollar.
Apparently, the government’s string of steps, including removal of withholding tax on masala bonds, relaxation for FPIs and curbs on non-essential imports to contain the widening CAD and check the currency fall, failed to cheer the rupee.
Ajay Bodke, CEO for PMS at Prabhudas Lilladher said that the measures announced signals the government's intent to stem the panic that had gripped the currency market.
That said, the the impact of most of the measures would be felt not immediately, but over the next few months, Bodke said.
“What the government needs to focus on is how to address the structural deficiencies that have plagued export competitiveness of various sectors and what has hampered indigenous development of sectors such as electronics and capital goods that has led to surge in their imports, adversely impacting trade and current account deficit.
Rather than focusing primarily on how to fund the growing CAD, policymakers need to think on how to contain it,” the expert said.
Foreign outflows pick up paceA fall in the rupee hurts foreign investments and leads to foreign outflows.
Data suggests that foreign portfolio investors (FPIs) withdrew a net Rs 4,318 crore from equities on September 3-14 while they pulled out Rs 5,088 crore of the debt market, taking their total outflows to Rs 9,406 crore this month.
In absence of foreign flows, the market runs the risk of being overly-dependent on domestic flows, say analysts.
Technical chart signals volatilityAnalysts noted that while a Hammer candle on the weekly scale was a positive signal till the index stays below 11,600 level, volatility would go on.
The negative sequence of lower tops and bottoms is intact and the ongoing upmove could be in line with the new lower top of the sequence, said Nagaraj Shetti Technical Research Analyst at HDFC Securities.
“The lower top needs to be confirmed.
As long as Nifty stays below 11,600 level, the negative sequence remains intact.
Meanwhile, a Hammer on the weekly chart is indicating possibility of further upmove for the next week,” Shetti said.
