Domestic equity markets on Tuesday reflected weak sentiments of investors who seem spooked after the release of official GDP data, which indicated that India’s growth slowed to 5 per cent in the first quarter of 2019-20.
BSE Sensex and NSE Nifty plunged significantly in early trade and continued its bearish run through the afternoon session. At around 3.20 pm, Sensex plunged over 810 points at 36,522.18 while Nifty was hovering around the 10,780-mark, down 237.25 points.
Here are five reasons that are haunting the Indian equity markets:
Lowest GDP growth in six years
One of the biggest factors behind the weak market sentiment is official GDP data, which indicated that India’s economic growth has slowed down to 5 per cent, the weakest in 25 quarters or six years. Growth has slumped for the fifth consecutive quarter despite the government’s recent announcements to help boost the economy. However, the lower-than-expected growth figures attracted negative commentary from both brokerage firms and economists, sending shockwaves among domestic and foreign investors. Many economists urged the government to boost investments, which they said is the only way to revive the restrained economy.
Core industries slowdown, PMI data
Another blow to the stock market can be traced back to the release of official core sector data on Monday. According to official data, the growth of eight core industries dropped to 2.1 per cent in July due to a contraction in coal, crude oil, natural gas, and refinery products. In the corresponding period last year, the combined growth of the eight core industries was at 7.3 per cent. Meanwhile, Nikkei Manufacturing Purchasing Managers’ Index INPMI=ECI, conducted by IHS Markit, showed that India’s manufacturing sector hit its lowest mark in August at a 15-month low. The survey showed that manufacturing activity declined to 51.4 per cent in August, the lowest since May 2018.
Rupee hits 72/dollar-mark
The stock market sentiment has also been affected by the rupee’s freefall. The Indian currency fell sharply on Tuesday to go beyond the 72/dollar-mark again. A mixture of weak macro data and strengthening of the US dollar has dented the rupee’s value. Negative stock market sentiment added to the rupee’s woe as investors rushed to pull out capital.
Equity markets are also bearing the brunt of higher capital outflow. Both domestic and foreign portfolio investors (FPIs) have been spooked after the release of official GDP data on Friday. Since August 23, continued their selling spree, withdrawing close to Rs 5,500 crore from the Indian equity market. In July, the foreign investors had pulled out close to Rs 3,000 crore from the Indian equity markets.
Auto, bank stocks down
Last but not the least, the drag in automobile and banking stocks have also contributed to the weak market sentiment. As the automobile sector witnesses its worst slowdown in 10 months, stocks of most automakers are trading in the red. Sales numbers for August have triggered a major slowdown in the auto sector. Stocks of Tata Motors, Maruti Suzuki, Eicher Motors, Mahindra & Mahindra and Ashok Leyland are all trading in red. Meanwhile, banking stocks also plunged significantly after Nirmala Sitharaman had announced the merger of 10 PSBs into four entities. Shares of Punjab National Bank (PNB), Indian Bank, Oriental Bank of Commerce and Canara Bank fell sharply on Tuesday.