Benchmark indices posted their biggest single-day fall in nearly two months as a slew of global headwinds triggered a major selloff by foreign portfolio investors (FPIs).
A sharp resurgence in China’s markets raised concerns about a shift in foreign flows from India, where valuations are nearly double those of other emerging markets.
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In addition, rising tensions in West Asia following Israel’s strikes in Lebanon, along with a slide in Japanese markets, weighed on sentiment. Experts said traders were also nervous ahead of the market regulator tightening derivatives trading criteria.
FPIs pulled out nearly Rs 10,000 crore from domestic markets on Monday.
The Sensex closed at 84,300 after a decline of 1,272 points, or 1.5 per cent, while the Nifty 50 index ended at 25,811, down 368 points, or 1.4 per cent — its biggest drop since August 5. The total market capitalisation of BSE-listed firms fell by Rs 3.6 trillion at Rs 474 trillion.
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So far, this round of stimulus has sparked a strong market rebound. The sheer scope of the measures has provided a surge of confidence in the markets. Many investors — who had been waiting for a reason to jump back in — have seized the opportunity, driven by fear of missing out and the fact that valuations were very cheap,” wrote Mark Mobius, founder and chief executive officer of Mobius Investments, in his blog.
The benchmark Nifty trades at a one-year forward price-to-earnings (PE) ratio of 21.5, while China’s Hang Seng and Shanghai Composite trade at 9.4 and 11.5, respectively. The Hang Seng rose by 2.4 per cent on Monday, and the Shanghai Composite Index surged 8.06 per cent following Beijing’s stimulus blitz.
U R Bhat, co-founder of Alphaniti Fintech, said FPIs were taking profits from India to invest in China.
“China was on a sticky wicket for a long time, and all the new flows were negative. The current stimulus is big, and a lot of quick money can be made there. Typically, foreign funds won’t let go of such an opportunity since they have made much money in India this month. It will be redirected to China,” he said.
Japan’s markets plunged 5 per cent after Shigeru Ishiba, perceived to be a monetary hawk and less market-friendly, became Prime Minister. Escalating tensions in West Asia also impacted sentiment, as Israel killed Hezbollah leader Hassan Nasrallah in Beirut.
If the Strait of Hormuz becomes a casualty of these tensions, it could affect oil prices,” Bhat said.
Domestic markets had been hovering around record highs until last week, buoyed by a 50 basis-point rate cut by the US Federal Reserve. Experts said some profit-taking was healthy as certain market segments had become overheated.
Investors also maintained light positions ahead of corporate results for the quarter ending in September. Additionally, the status of monetary policy decisions globally and US non-farm payroll data, set to be released on Friday, will provide further cues on market trajectory.
Market breadth was weak, with 2,306 stocks declining and 1,749 advancing. All but five Sensex stocks fell. Reliance Industries fell 3.2 per cent and was the biggest contributor to the declines.
First Published: Sep 30 2024 | 11:33 PM IST
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