Sensex failed to sustain near its record high level since Dec 9, 2013
Emergence of Aam Aadmi Party (AAP) in the country's political firmament is turning to be the reason of worry for the Indian equity markets. The fear of an unstable Government from the fast approaching general elections has caused foreign institutional investors (FII) to exit from Indian equities as experts fear AAP to eat up substantial shares of the political heavyweights.
It has been over four weeks since Sensex touched an all time high of 21,483.74 on December 9, 2013. Ever since then, Sensex has witnessed extremely volatile trading session and has been trading in a narrow range, below the 21,000 mark since January 1, 2014 but above 20,000 levels. The only plus point for Sensex currently is that it has been able to sustain itself above the 20,000 psychological mark for over four months, since September 6,2013.
International brokerage firm, Jefferies in its latest report stressed on the importance of a stable Government post elections and also warned investors to be prepared to see sharp falls in presence of a weak and unstable Government. "We expect the market to yield over 5-10 per cent returns by the election day and a further 10-15 per cent in case the election results are decisive which the market wants," Jefferies said in its report titles.
The report further added, "If the results disappoint, we would expect a sharp down move immediately post-results, possibly giving up all the pre-election gains." While commenting on the impact AAP would have, the report said its populist agenda has added a new dimension to the likely May elections, though it is unlikely to have enough time to make a major difference.
Amid the fear of election results, again on Tuesday, the stock markets continued to fall on the fifth straight trading session. The benchmark index fell by 94.06 points to a three- week low of 20,693.24 as retail investors and FIIs continued with profit booking. The broader index, Nifty also corrected further by 29.20 points to 6,162.25.
Sensex started the session on a stronger note but due to heavy profit booking metal, real estate and oil & gas stocks, plummeted by over 250 points to its day low of 20,637.18. later, it recovered on a firm opening in European stocks and recovery in rupee. The domestic currency recovered from its day low of Rs 62.47 per dollar and finally managed to end the session after gaining one paisa at Rs 62.30 per dollar. Heavy dollar selling by exporters helped rupee to rise marginally and restrict the fall in stock markets.
Eight of the 12 BSE sectoral indices declined, led by metal and real estate indices which fell by 1.68 per cent and 1.37 per cent respectively. Apart from that, oil & gas, power and information technology indices also declined by 1.37 per cent, 1.30 per cent and 1.29 per cent respectively. Capital goods index was the biggest gainer as it rose by 0.49 per cent.
Sensex closed on its lowest level since December 17, when it closed at 20,612.14. In five straight sessions, the Sensex has declined 477.44 points. FIIs on the other hand continued with selling their stocks on the second straight session. As per the data provided by the stock exchanges, FIIs sold shares worth Rs 318.91 crore on Monday and Rs 567.02 crore on Tuesday.
Another reason which has caused this FII selling is the concerns that US interest rates would rise after the smart recovery in the economy. According to some analysts, while most emerging markets are prepared for the tapering of the US stimulus programme, they are not equipped for interest rates rising.
In the domestic market, 18 of the 30 Sensex shares ended lower, while on Nifty, out of the 50 shares comprising the index, 35 stocks ended the session with losses. Although, the market breadth remained positive as 1,289 stocks in total gained, 1,256 fell and 134 ruled steady. Total turnover declined to Rs 2,354.11 crore from Rs 2,387.70 crore on Moday.