Markets To Slide Further

It was expected to happen at the time of July F&O expiry and it did happen. Yes we are talking about Indian equities witnessing profit booking hence indices witnessing a decline. As expected, leading benchmark indices succumbed to selling pressure in late trades, amid huge volumes, with financial shares leading the decline following the expiry of July derivative contracts. Further, sales by foreign funds also weighed on sentiment. Amid the all volatility throughout the day, Sensex ended 192 points down at 25895 and Nifty closed 70 points lower at 7721. Volumes were large because of the expiry of July derivative contracts. Total market turnover stood at Rs 6.79 lakh crore, the third highest so far.

As stated earlier the FIIs sold USD 63.4 million worth of equities for the first time in the last ten sessions, as per provisional data released by the stock exchange. With this, the Indian rupee (INR) extended losses and was trading lower at Rs 60.46 compared to the previous close of Rs 60.09 as the dollar strengthened following encouraging GDP data from the US. Further, weakness in the domestic stock markets also weighed on sentiment.

While the markets witnessed a decline there was cheerful news also. In the clearest signal yet that economic activity is picking up after the recently-concluded general elections, India’s core sectors grew at 7.3 % in June 2014 compared to 1.2 percent growth in the year-ago month. Activity in the eight core sectors like coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement and electricity are considered as vital component in economic growth and a higher growth number should reflect in heightened industrial activity and GDP growth numbers for the quarter. We are of the opinion that the RBI would now keep the key interest rates unchanged as core sector growth is good.

However this data may not be of any help for the Indian equity indices as global data is quite negative. In the US markets, there were weak corporate results, the looming end of stimulus from the Federal Reserve and tensions between the West and Russia. On top of that, some investors feared that stocks have become too pricey after three years without a significant downturn. Investors are also concerned about a range of geopolitical issues that could ultimately harm global growth. In Europe, tensions are escalating between the European Union and Russia after the downing of a passenger plane over Ukraine. The European Union also revealed the details of broad economic sanctions against Russia. Further the worries about Argentina default was on investors’ minds. With these fears, the S&P 500 dropped 39.40 points, or 2 %, to 1930.67, its biggest loss since April 10. The drop pushed the index to its first monthly loss since January. The Dow Jones industrial average plunged 317.06 points, or 1.9 %, to 16,563.30. The drop was the biggest since Feb. 3 and the index is now 13.36 points lower for the year. The NASDAQ composite fell 93.13 points, or 2.1 %, to 4,369.7 levels.

Taking cues from the US markets and global worries even the Asian equity indices are trading in red. While Nikkei is trading in red with loss of 0.40%, Hang Seng is down 0.70%. Straits Times is also down 0.77% followed by Shanghai Composite marginally down by 0.10%.

SGX Nifty however is showing the weakest signal and is down 1.34%. Even after a significant decline yesterday the SGX Nifty is indicating towards a more than 1% decline. This clearly indicates towards a heavy amount of profit booking occurring even today. Amid the decline in benchmark indices, there are few data points to be watched for. Indian Automobile companies would be announcing sales volume figures for July 2014. The recent results of Maruti Suzuki indicated that volumes have increased in the past few months. Hence automobile companies would be followed by the investors. In US the Non Farm Pay Roll and Unemployment data would be announced today.All in all Indian Equity indices are likely to open on a weak note and then remain under pressure at least in the early hours of trade.