Global stock markets came off from the highs as the US Federal Reserve dropped cues for interest rate hike while European Central Bank and Bank of Japan tilted towards more monetary easing. ECB kept interest rates unchanged in its monetary policy review meeting and intends to continue monthly asset purchase of EUR 80 bn till March 2017. Revised Japanese economic data to 0.7 per cent fades the chance of expansion of stimulus. On other side, nuclear test by North Korea and weak export data by Germany created anxiety among investors.
Captivating these global cues mainly Wall Street and LSE tumbled down. In last 15 days; Dow Jones, S&P 500, NASDAQ were down by 2 per cent. London’s FTSE 100 and Germans DAX were down by 0.64 per cent and 0.79 per cent respectively. On Asian front, Hang Seng and Nikkei were up by 4.71 per cent and 1.44 per cent.
On domestic front, questioning by tax officials on claims of nominees and other investment entities worried FDI. The government has become more vigilant on entities using Mauritius route to enter the domestic markets. Markets will also take cue from IIP and CPI numbers. Indian indices are already trading upward on higher valuation numbers notwithstanding under performed net profit numbers by 2500+ odd companies in first quarter of FY17. It also signals overbought status of the markets.
On Monday, September 12, 2016 Dalal Street also experienced bear run along with global counterparts on weak global cues. Auto sector experienced biggest fall by 595 points followed by banking sector by 555 points. Ashok Leyland, Motherson Sumi, Exide Industries, Bosch and Tata Motors were majorly affected by average of 3.5 per cent. In banking sector; BOI, Yes Bank, BOB and PNB were down by average of 5.7 per cent. Capital goods sector followed by metal sectors also tanked 500 points and 437 points. From capital goods sector- Reliance Defence followed by I L and FS Transmission, BHEL, Praj Industries and Thermax were down by average of 6.1 per cent. From metal sector, 8 stocks tanked in the range of 4 per cent to 8 per cent. Only IT sector sustained and up by 89 points after a long slowdown.
On commodity front, gold also slid down to Rs 31,280 per 10 grams on renewed speculation of an interest rate hike by the the US Federal Reserve. Crude oil prices were down due to high crude inventories in the US and meeting of the oil producers scheduled in Algeria on September 26- September 28, 2016.
We see some more correction on the way as markets consolidate. We expect markets to correct so that earnings growth commensurate valuations. Going forward markets will take cues from IIP and CPI numbers along with BOE’s asset purchase target and rate decision. Consolidation provides good entry point to investors to pick and choose stocks beaten down by herd mentality.