NEW DELHI: Domestic equity indices crumbled under pressure of worse-than-expected Chinese macro data and falling European markets and tanked in the afternoon trade on Friday.
Bank, auto and financial services stocks came under heavy onslaught from bears, who took equity indices in the red for the third day on a trot. Select metal and pharma names saw some buying.
The 30-share pack Sensex plunged about 900 points during the day from its highs, and closed down 433 points at 37,877 while its NSE peer Nifty fell 122 points to 11,178.
“During the month we have been suggesting consolidation in the market. Q1 earnings season started with weak expectations but results were better and commentary was positive. So large caps did really well. NOw this is so much factored in the prices that the valuations are at historical high and sustaining that is difficult. There is no incentive to put money in index heavyweights,” said Vinod Nair of Geojit Financials.
Here are key factors affecting the market:
China macro data disappoints
China’s July retail sales unexpectedly fell and factory output missed estimates, dampening investor sentiment that stemmed from upbeat recent data from the country that was the first to emerge from lockdowns.
This dented the hopes of swift recovery giving bears enough ammunition to charge on the markets.
No clarity on stimulus
The market which was pricing in the second stimulus package in the US has been hurt by uncertainty over it. The two major parties who have a majority in each of the two houses of the US Congress have not reached an agreement delaying the much needed stimulus.
The US President over the weekend had signed an executive order temporarily continuing some of the government programmes. But experts have doubted if he has the legal power to do it.
World markets tumble
Global shares also plunged, negatively affecting the sentiments back home. European shares were dragged lower by a hit to travel stocks after Britain added more European countries to its quarantine list.
The pan-European STOXX 600 was down 0.7%, although on track to gain for a second straight week. MSCI’s world index was 0.2% lower, drifting further from all-time highs touched in February.
Analysts have been cautioning investors about surging valuation of some of the largest companies. Some of the traders have been bearish in the indices. Sanjiv Bhasin of IIFL Securities in an interview said he had short positions on Nifty and Bank Nifty.
“We thought that the bad news on the results is priced in but I am again not ruling out a 500-point correction on the Nifty. So, we are hedged on the Nifty on the short side for our clients,” he said.