Tuesday, September 17th saw the Indian financial markets take a beating with the Sensex falling 642 points and the Nifty turning negative for 2019, down 186 points. This followed a traumatic Monday which witnessed 31 stocks on the NSE touching a 52-week low. The selloff came as a result of three main reasons:
• Rising crude prices: On Saturday an attack on Saudi Arabia’s Aramco disrupted about 5% of the global crude oil production, resulting in a spike in oil prices. This was expected to increase India’s trade deficit which imports 80% of its oil requirements, creating panic amongst domestic investors. It should be noted that following a Reuters report that oil production would return to normal within two to three weeks US oil futures and Brent crude dropped 5.5% and 6.3% respectively. This is expected to ease fears in the domestic market.
• Sell off by FIIs: The selling of shares by foreign institutional investors (FIIs) added to the already weak investor sentiment. Data compiled by the National Securities Depository indicated that foreign investors have so far this month net sold shares worth Rs. 2,428 crores.
• Fed rate cut unlikely: Despite fears of a looming recession US private payrolls grew by 195,000 vs the wall street estimate of 140,000. This has led to fears of the anticipated Fed rate cut not coming through. These fears have had an impact on global flows, particularly affecting emerging markets.
• Chinese manufacturing: In the light of the ongoing US-China trade war, the Chinese manufacturing sector has been hurt severely. Based on data released in August manufacturing hit a 17-year low in July’19, this along with India’s low IIP growth has affected investor sentiment within the domestic market.
The selling pressure resulted in only 3 of the 30 stocks in the Sensex basket ending higher, with 44 stocks of the Nifty 50 ending in losses. Yes Bank, TCS and HCL were the sole gainers in the Sensex, with Bajaj Finance being the worst performer. In the light of the current economic downturn the lack of investor confidence has been reflected in the financial markets, whether the recent government interventions to stimulate the economy will restore this lost confidence remains to be seen.