Indian Indices Plunge Despite Strength In Global Markets

What happened in the week gone by is something that absolutely no one would have foreseen. The Indian markets have wiped off between 3%-3.5%, as against their international peers which mostly saw gains. Liquidity tightening measures and the disappointing commentary of the RBI lead to the sell-off in the domestic markets, with the Sensex closing 3% lower and the Nifty down by 3.5%. The Nifty saw the more significant fall due to the hammering of the banking stocks.

Worldwide, the US markets surged further over some robust GDP numbers. The US GDP for the second quarter of the calendar year grew by 1.7% year-on-year against the street’s expectations of 1%. The higher GDP numbers indicate that the US economy is healing faster than was anticipated. The non-farm employment change data was also above estimates, which tells of a sustained improvement in the job market.

The Chinese indices also closed in positives during the week following the positive manufacturing data. The European indices, viz. DAX, CAC and FTSE, also gained more than 1% each.

Meanwhile the domestic manufacturing industry have shown further weakness, as the HSBC manufacturing PMI numbers recorded slower pace of growth in the sector. The PMI numbers for July 2013 were at 50.1 against 50.3 for the earlier month. The agency has said that there is demand and supply pressure. Rupee depreciation is also a reason why the raw material costs have increased. Overall, the economy has continued to go through a phase of slowdown. Not surprisingly, the numbers weighed down the markets.

In the last month, the RBI increased the short-term lending rates to curb speculation in the forex market. However, this has not led to any immediate impact. As per economists, the RBI’s whip on liquidity has ultimately led to speculation being curbed, otherwise the rupee may have depreciated beyond 65 against the dollar.

The RBI also announced its monetary policy with a 'status quo' on the policy rates. The apex bank, however, has estimated that the country would grow at a rate of 5.5% this year against the earlier estimates of 5.7%.Additionally, the bank also said that the current measures would be taken back only when the foreign capital outflow stabilises. However, it failed to explain exactly when it will roll back the liquidity measures. The announcements took a toll on the banking stocks, and the BSE Bankex closed down 4.5% during the week.

Hammered by the outright negative sentiment, the rupee too tanked another 3% in the week. Following this, indices such as Power and Realty tanked by more than 10%. FMCG, Metals and Oil & Gas also dropped by more than 5%

Financial Technologies was a stock that remained a major talking point during the week, as it saw a huge 60% decline on Thursday, August 1. This was over fears of a cash crunch and payment default in the National Spot Exchange. The shares of MCX also hit a lower circuit twice during the week on this news.

The shares of Wockhardt were locked in the lower circuit for the whole week. Jaiprakash Group was also down. Indian Bank plunged 27% during the week, hit by a poor set of results.

On the other hand, the IT pack shone on the bourses, with Wipro up 15% in the week. Sun TV also rose 12% on expectations of good results. Titan, Ipca Labs, TCS and Lupin were all in the green by the end of the week.

The markets look weak due to all sorts of news floating around with regard to the liquidity crisis in NSEL. In the next week, the markets may show some weakness. Investors would do well to steer clear of the MCX and Financial Technologies stocks.