Markets clobber out of shape on geopolitical concerns; Nifty breaches 10k mark

Indian equity benchmarks witnessed absolute carnage on Friday and went home with a cut of around one and a half percent, breaching their crucial 32,000 (Sensex) and 10,000 (Nifty) levels. After a gap-down opening, markets never looked confident of recovering and gradually extended their losses till end to close near intraday lows on renewed geo-political worries after a report that North Korea could respond to fresh sanctions with a hydrogen bomb in the Pacific. Back on domestic turf, sentiments remained dampened on expectations that the government’s plan for a stimulus to halt an economic slowdown may have a negative impact on the fiscal deficit. Market participants also remained concerned with report that the Organisation for Economic Co-operation and Development (OECD) trimmed India’s growth forecast for the current financial year, citing the temporary impact of the rollout of the Goods and Services Tax (GST) and demonetization, expecting the economy to expand at a slower pace than China. OECD said India’s economy will likely grow 6.7% in FY18, lower than its estimate 7.3% in June. The Paris-based group of 35 advanced and emerging countries cut its forecast for India’s growth to 7.2% in FY19 from 7.7% estimated earlier.

Meanwhile, traders failed to get any sense of relief with report that the government is considering a plan to loosen the fiscal deficit target so that it could spend an additional Rs 500 billion ($ 7.7 billion) in the financial year ending in March 2018. Traders also paid no heed to reports that given the lack of considerable space both on the monetary and fiscal front to support economic growth, part of the country’s forex reserves can be used to support GDP numbers.

Firm trade in European counters too failed to pull markets out of woods as CAC, DAX and FTSE were trading in green ahead of this weekend’s general election in Germany, where conservative Chancellor Angela Merkel is expected to win a fourth term. Asian markets closed mostly in red. S&P Global Ratings cut Hong Kong’s credit rating a day after it downgraded China for the first time since 1999, a move that reflects the strong institutional and political linkages between the special administrative region and the mainland.

Closer home, investors took note of a report that a slowdown in growth is likely to create pressure on the government to announce an economic stimulus package. But it could have an adverse impact on near-term macroeconomic stability. Besides, there could be long-term implications on growth, the way it happened with the 2008-09 fiscal stimulus package. On the sectoral front, infra sector stocks edged lower despite Government’s 100 smart cities mission seeking to invest over $15 billion in the next few years to build efficient and effective city management solutions and infrastructure.

Finally, the BSE Sensex tumbled 447.60 points or 1.38% to 31,922.44, while the CNX Nifty was down by 157.50 points or 1.56% to 9,964.40.

The BSE Sensex touched a high and a low of 32,342.81 and 31,886.09, respectively and there were 2 stocks on gaining side as against 29 stocks on losing side on the index.

The broader indices ended in red; the BSE Mid cap index slumped 2.71%, while Small cap index was down by 2.93%.

The top losing sectoral indices on the BSE were Realty down by 4.29%, Metal down by 3.99%, Basic Materials down by 3.55%, Capital Goods down by 3.29% and Industrials was down by 2.68%, while there were no gainers on the BSE sectoral front.

The only gainers on the Sensex were Wipro up by 1.00% and Coal India was up by 0.12%. On the flip side, Tata Steel down by 4.70%, Larsen & Toubro down by 3.49%, Reliance Industries down by 2.83%, ICICI Bank down by 2.77% and Hero MotoCorp was down by 2.59% were the top losers.

Meanwhile, the World Trade Organisation (WTO) has raised its 2017 forecast for world trade growth to 3.6 percent from the 2.4 percent estimated earlier, a development which augurs well for India. It also said that the predicted growth would also represent a substantial improvement on the lackluster 1.3 percent increase in 2016.

The Geneva-based multi-lateral trade body has stated said that stronger growth in 2017 was attributed to a recovery of Asian trade flows as intra-regional shipments picked up and as import demand in North America improved after stalling in 2016. It also pointed out that while the improved outlook for trade is welcome news, substantial risks that threaten the world economy remain in place and that could easily undermine any trade recovery.

WTO further said that these risks include the possibility that protectionist rhetoric translates into trade restrictive actions, a worrying rise in global geopolitical tensions and a rising economic toll from natural disasters. It also said that stronger growth particularly in China and the US have boosted demand for imports. In addition, it noted that the rapid pace of trade growth this year is unlikely to be sustained next year for a number of reason. It said “First, trade growth in 2018 will not be measured against a weak base year, as is the case this year. Second, monetary policy is expected to tighten in developed countries.”

India’s exports posted a double-digit year-on-year growth of 10.29 percent after a gap of three months to $23.81 billion in August, mainly on account of sharp rise in export of petroleum products, chemicals, marine products and engineering goods. 

The CNX Nifty traded in a range of 10,095.05 and 9,952.80. There were 4 stocks in green as against 47 stocks in red on the index.

The few gainers on Nifty were HCL Tech up by 1.45%, Wipro up by 0.70%, Bharti Infratel up by 0.66% and Tata Motors was up by 0.33%. On the flip side, Hindalco down by 4.85%, Tata Steel down by 4.76%, Yes Bank down by 4.14%, Ultratech Cement down by 3.99% and Vedanta was down by 3.89% were the top losers.

European markets were trading in green; UK’s FTSE 100 rose 13.38 points or 0.18% to 7,277.28, France’s CAC increased 23.75 points or 0.45% to 5,291.04 and Germany’s DAX was up by 34.98 points or 0.28% to 12,635.01.

Asian equity markets ended mostly lower on Friday after North Korea threatened it could consider testing a nuclear weapon in the Pacific. Investors also digested the prospect of an additional rate hike from the Fed this year. Japan’s Nikkei share average slipped from a two-year high after North Korea threatened to test a hydrogen bomb in the Pacific Ocean, ratcheting up tensions with the United States and its allies. Meanwhile, Chinese stocks ended off their day's lows amid expectations that Beijing will maintain stability in markets ahead of next month's meeting of the Chinese Communist Party's National Congress. Hong Kong stocks posted their worst decline in a month, erasing much of the week’s gains, as investors trimmed positions following S&P’s downgrade of China’s sovereign credit rating and North Korea’s nuclear threats. The US Federal Reserve’s plan to shrink its balance sheet and later raise interest rates also dented sentiment. The markets in Malaysia remained closed for the Islamic New Year.