Weak global cues and a downgrade of Indian equity markets by Goldman Sachs for the first time in nearly four-and-a-half years affected investor sentiment, with both the benchmark indices shedding more than 1% each on Monday.
The 30-share Sensex lost nearly 550 points in intraday to touch a low of 37,548.93 before closing at 37,585.51, down 505.13 points, or 1.33%. As many as 25 stocks in the Sensex pack ended in the red with heavyweights such as HDFC, Reliance Industries, HDFC Bank and Tata Motors losing more than 2% each. Interestingly, the overall market breadth was balanced with declines at 1,441 only marginally outnumbering gainers at 1,282.
The broader Nifty settled the day at 11,377.75, down 137.45 points or 1.19%. The benchmarks of Hong Kong, China and Indonesia lost over 1% each amid reports that the U.S. is preparing to impose tariffs on goods worth $200 billion from China.
After two days of gain, the rupee weakened on Monday as it crossed the 72 a dollar mark though the Centre announced steps on Friday aimed at improving the current account deficit. The rupee ended at 72.51 falling 0.9% from its previous close.
Lofty valuations
For the first time since March 2014, global financial major Goldman Sachs changed its view on the Indian equity market — lowering the grade from overweight to market weight — citing expensive valuations, the recent rally, likely increase in fiscal deficit ahead of the elections next year and the possibility of a less stable government.
“Given elevated valuations and recent strong performance, we believe the risk/reward for Indian equities is less favourable at current levels,” it said. A likely increase in government spending or fiscal deficit before elections and potential event risk of a less stable government could weigh on markets near-term, it added.
“Indian equities are the most expensive in Asia, and trading at a record 58% premia to region. At these levels, equities have historically posted negative returns over 3-6 months,” it said.
“We expect markets to consolidate heading into the elections and Nifty to reach its 12-month target of 12,000 as political uncertainty wanes and earnings accrue.”
Goldman Sachs economists forecast a current account deficit of 2.6% of GDP this year against 1.9% in FY18. While domestic inflows have slowed for four consecutive months, fund flows could slow down further as the yield gap between equities and bonds has fallen to 10-year lows.
Incidentally, foreign investors have been net sellers at ₹ 3,638 crore in the current month, while their year-to-date net outflow is pegged at ₹ 6,030 crore. Foreign investors have been net sellers in five of the first nine months of the current calendar year.
