PSU banks also join downward journey

The market witnessed a profit-booking spree on Monday as players sensed inevitable short-term pains from demonetisation, which could hit India Inc profit for at least two quarters, and a likely US Fed rate hike on December 15 that could strengthen global headwinds.

Benchmark indices Sensex and Nifty shed another 1.5 to 1.8 per cent, with the Sensex falling below the 26,000 level and the Nifty, below 8,000 range in extended selling for the sixth consecutive session.

Sensex and Nifty have fallen 6.5 to 6.8 per cent so far since the twin shocks of demonetisation of ₹ 500 and ₹ 1,000 currency notes and Donald Trump's victory in the US presidential election for investors.

PSU banks, which had so far bucked the downtrend as they seemed benefiting from demonetisation, also succumbed to selling pressure led by State Bank of India (-6.51 per cent), Punjab National Bank (-8.82 per cent), Bank of Baroda (-8.63 per cent) and Canara Bank (-5.93 per cent). The slide in private banks continued; HDFC Bank was down 1.08 per cent and ICICI Bank -1.13 per cent. Axis Bank (-1.61 per cent), Kotak Mahindra Bank (-2.16 per cent), Yes Bank (-5.17 per cent) and IndusInd Bank (-3.87 per cent) were the other key losers.

The equity derivatives expiry of futures and options contracts for November coming up on Thursday added to the selling pressure on benchmark indices on Monday.

The Sensex fell 1.47 per cent, or 385 points, to 25,765 while the Nifty saw a much sharper slide by 1.80 per cent, or 145 points, to 7,929.10.

The broader market fell more than the large cap-stocks, with the BSE Mid-cap index down 2.80 per cent and BSE Small-cap index down 3.16 per cent.

Raunak Onkar, co-fund manager, PPFAS Asset Management, said, "The market fall could be due to multiple reasons and it will be difficult to pinpoint one particular reason. Investors who had estimated higher earnings growth in the future may have revised their expectations."

Foreign portfolio investors (FPIs) remained net sellers of equities worth ₹ 1,310.82 crore on Monday, by provisional stock exchange data.

After the sharp FPIs inflows into the Indian market post-Brexit, selling resumed from early November and intensified post-Trump victory, leading to outflows of about ₹ 11,720.56 crore so far. FPI outflow in November is the highest in 2016, surpassing the January outflow of ₹ 11,126 crore.

Deutsche Bank's research analysts Abhay Laijawala and Abhishek Saraf cut their December 2016 Sensex target to 25,000 from 27,000 earlier, citing global headwinds and short-term impact of demonetisation.

"India will not remain immune to the outflow pressure seen across emerging markets. In the run up to the end of the calendar year, we expect the flow environment to stay highly challenging with many uncertainties. These include: (1) the outcome of the Italian referendum on December 4, Fed meeting on December 15 and pace of outflows from China and the associated depreciation of the Chinese currency( after Trump's victory)," analysts from Deutsche Bank said.

Talking about demonetisation impacts, Laijawala and Saraf said, "In the near-term, discretionary spending and sectors reliant on the cash economy will see a sharply negative impact. We may even see the autumn harvest and the winter crop sowing impacted, which may lead to a slower-than-anticipated growth in agricultural production, which could impact the macro economy over the next two quarters, before recovering in 1QFY18."

On Monday, all sectoral indices on BSE and NSE closed in the red, the top losers being BSE Realty (-4.71 per cent), Metal (-3.34 per cent), Auto (-3.25 per cent), Bankex (-2.89 per cent), Power (-2.75 per cent) and Capital Goods (-1.99 per cent).

The extent of negative sentiment in the market could be gauged from the extremely negative market breadth on the BSE, with only 408 stocks advancing and 2,223 stocks declining while 147 closed unchanged.

Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services, in a note, said, "The fall of Nifty from 8,900 levels was very sharp and a culmination of global uncertainties and domestic reactions to demonetisation. This randomness of events has put a lot of uncertainty in markets. Brexit led to currency upheaval while Trump event will lead to policy uncertainty in the world's largest economy and hence the biggest source of investible funds. For us in particular, the government's demonetisation action will lead to questioning the growth theory of India itself."

"Globally, expectations of "rate hike" by the Fed is leading to investors pulling the plug, leading to selling by passive funds. The plausible hike in interest rates in its December policy meet will make investments in risky assets less attractive as compared to fixed income asset class," Oswal said.

The top losers in the Sensex pack were SBI (-6.51 per cent), Power Grid (-3.57 per cent), Tata Steel (-3.52 per cent), Maruti (-3.46 per cent), Mahindra & Mahindra (-3.16 per cent), Tata Motors (-2.99 per cent).

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