Bear Hug Bogs Down The Markets

The market reacted excessively to the contagion risk arising from IL&FS’ defaults and the rising borrowing costs of NBFCs, thereby triggering a dumping of DHFL and other major NBFC stocks. 

Red was the colour that took over the Indian equity markets this fortnight. A sudden loss of trust in the market’s favourite sector, the non-banking financial companies, triggered a sell-off which brought the benchmark indices Sensex and Nifty down by around 4 per cent during the fortnight. An interplay of macroeconomic concerns, including the rising crude oil prices, depreciating rupee, rising inflation and the looming trade-war crisis weakened the market sentiments further. 

What hit the market most was the uncertainty looming around the debtladen infrastructure financing company IL&FS. The market reacted excessively to the contagion risk arising from IL&FS’ defaults and the rising borrowing costs of NBFCs, thereby triggering a dumping of DHFL and other major NBFC stocks. The extent of the mayhem in the markets can be gauged by the depth of the fall and the widespread nature of the selling pressure. All sectoral indices were down during the fortnight, with Bankex leading the pack, down by 7.44 per cent, followed by BSE Realty, down by 6.54 per cent. BSE Auto index also dipped by 5.79 per cent, with new vehicle insurance norms and rising cost of fuel making owing vehicles less attractive. Other sectoral indices, including Power, FMCG, IT and Metal were down by 3.78, 3.12, 1.97 and 0.64 per cent, respectively. The broader indices Mid-Cap and Small-Cap also tanked by 5.51 and 6.71 per cent, respectively, with small-cap stocks taking more of the beating. 



In sharp contrast, the international equity markets were upbeat, right from the US to China. The Japanese Nikkei posted the best gain of 7.01 per cent during the fortnight, followed by the French index CAC 40 with 4.61 per cent gain, the German DAX was up by 3.94 per cent, while the Dow Jones Industrial was up by 3.19 per cent and UK’s FTSE 100 was up by 2.92 per cent. Among the Asia markets, Hang Seng and Shanghai Composite also posted more than 3 per cent gains during the fortnight. 

The trading data for the FIIs and DIIs for the fortnight showed that FIIs were consistently selling, registering a net outflow of Rs 6,671.56 crore, whereas DIIs were net buyers to the tune of of Rs. 3,841.62 crore. 

The market is battling trust erosion caused by the ongoing IL&FS crisis, even as the government assured that it will provide adequate liquidity to NBFCs, mutual funds and SMEs. Also, the chatter around crude oil hitting US$90 per barrel by Christmas and trading at US$100 per barrel in early 2019 is not helping the market gain positive momentum. Market participants expect the RBI to hike rates in the next monetary review policy to ease the rupee depreciation, which might give direction to the markets, going ahead.








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