Thanks to indelectable macro data, appetite for fresh investments is low

Market participants had a tough time digesting the slew of negative macroeconomic data served over the weekend. And, the sharp fall in Indian stock market indices mirrors that pain very well.

The Nifty and the Sensex shed more than 2% each on Tuesday, pushing the fear gauge India VIX (volatility index) up 11% to the 18-mark. Global cues weren’t very supportive either, with the Asian markets closing on a mixed note. But the decline in Indian stocks was largely due to domestic concerns.

Analysts say while the market may have factored in most of the poor data, fresh buying may not come in a hurry.

“There are media reports that the government may sell its stake in BPCL (Bharat Petroleum Corp.) to IOC (Indian Oil Corp.), which has further weighed on sentiments because this route of privatization will weaken the buying profit-making government entity. Investors feel that the government’s actions in responding to economic woes are not sufficient. They also need to be more pre-emptive with their measures. That said, most negative data has been factored in after today’s steep fall. However, investors may not be in a hurry to make large fresh investments, for now," said Deepak Jasani, head of retail research at HDFC Securities Ltd.

Sharing a similar view, Dhananjay Sinha, head of the strategy and chief economist at IDFC Securities Ltd, said: “For equities, selling pressure from foreign institutional investors continues. Feedback from mutual fund distributors indicates that retail investors are wary of investing right now. Value erosion has happened in midcap and small-caps space, where mutual funds haven’t performed well. So, the appetite for fresh investments remains low."

Not just the equity indices, the rupee also took a knock, weighed down by growth concerns. The Indian currency depreciated sharply against the greenback, sliding past the 72-mark once again. It ended Tuesday’s session at a nine-month low of 72.39/US dollar (USD).

“The current valuation of Nifty at PEG (price-earnings to growth ratio) of 5 times indicates that multiples haven’t moderated much despite the recent correction. However, the Indian rupee has convincingly crossed the 72/USD mark, indicating that risk aversion is happening. Given the economic woes, we foresee depreciation in the rupee to around 74/USD in the near term," added Sinha of IDFC Securities.

The June quarter gross domestic product data, which was released on 30 August, was much below expectations. That apart, lower goods and services tax collections for August, falling auto sales, manufacturing Purchasing Managers’ Index survey and subdued core sector growth data, pointed to further stress on the economy.

Also, D-Street wasn’t too impressed with the government’s move to consolidate 10 public sector banks into four entities. Credit Suisse Securities (India) Pvt. Ltd said this was unlikely to revive credit growth to the liquidity-starved non-banking financial companies or have meaningful cost synergies.

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