It has been a big reversal for Sensex since it hit the 30,000 levels on March 4. On Thursday, it suffered its second worst fall to fall below 27,500, marking its seventh day of losses in a row. The fall in Sensex came despite the government passing important legislations like the insurance and coal bills and on the global front the US Fed has signaled that it is not in a hurry to hike rates. The rupee has also remained more or less stable despite turmoil in the global currency markets.
What Experts Say About the Market Fall
1) The primary reason attributed for this fall has been the lack of further positive triggers in the market to take markets higher and corporate earnings not catching up with the valuations of the Indian markets. The Sensex had gained nearly 30 per cent in the past one year when it hit the 30,000 level this month though corporate earnings -which are fundamentally the main drivers of stock markets – have not picked up.
2) Market experts in fact expect the forthcoming fourth quarter earnings to deteriorate for some sectors. Ajay Bagga, a market expert, said in the third quarter, top 100 companies on the stock market saw earnings de-growth of minus 6 per cent as compared to the year-earlier period. He expects the weak earnings scenario to persist in the fourth quarter and in fact worsen for some sectors like infra, capital goods, banking etc. He expects earnings to pick up during the September quarter but during that time the US Fed is also expected to hike rates.
3) Concerns over earnings de-rating: Investors are valuing Indian markets 17-18 times one-year forward earnings, said Mr Bagga who expects a de-rating of earnings around April-May, based on the fourth-quarter earnings numbers. “People are holding 14-19 per cent earnings growth for the next financial year. But it might be 11-12 per cent or even in single digits,” he added. The geo-political situation is also weighing on the markets. Global risk appetite took a knock on Thursday after news that Saudi Arabia and its Gulf Arab allies had launched air strikes in Yemen against Houthi fighters who have tightened their grip on the southern city of Aden.
4) People holding cash: Though foreign institutional investors have not resorted to selling of Indian stocks, domestic high networth individuals have been sellers, anticipating markets to fall further in the near term, say analysts. Mr Bagga said many investors are holding cash on the hope of getting a lower market than the current levels. Mr Bagga personally feels that Nifty could slowly drift to 8,000 levels until earnings catch up. But if there are earnings greenshoots, the markets could get re-rated but it could take 3-6 months, he said.
5) Indian markets have slipped below important technical support levels which could trigger more selling pressure. Imtiyaz Qureshi, co-founder & director at Investeria Financial Services, said that Nifty has broken the 100-day moving average of 8530 for the first time since the Narendra Modi government came into power. It risks falling to 8,250 levels in near term, he added.