Dragged by factors such as weak rupee, crude surge, trade war fears and others, the market has ended the June series on a subdued note.
The market ended the session and June series with major cuts. The Sensex lost close to one percent, while the Nifty corrected over 1.5 percent for the series under review.
Maximum cuts came in from PSU banks, metals, real estate, infrastructure as well as the midcap index. Nifty PSU bank index was down 7 percent, while real estate index fell over 9.5 percent. The Bank Nifty fell over 2 percent, while the midcap index lost around 6 percent.
The Nifty has managed to end the series below 10,600 as well, while the Sensex closed just above 35,000.
Here are five factors that dragged the markets in June series.
One of the reasons behind the market’s fall could be the weakness in rupee. In the past one month, the currency has taken a hit and touched its lowest ever point of 69 to the US dollar on Thursday.
The rupee fell past 69 to the dollar for the first time ever on Thursday and hit an intraday low of 69.09, as crude prices continued their week-long rise, and amid concerns of higher inflation and current account deficit.
The surge in prices of Brent crude on Thursday led to banks and importers, particularly oil refiners, rushing to buy the greenback. Other factors weighing on the rupee were the weakness in its Asian peers like the Chinese yuan, the Singapore dollar, the Malaysian ringgit and the Indonesian rupiah. These currencies were all trading in the red because of heightened concerns of a trade war between US and China and fears that it will end up turning into a currency war.
Crude Oil prices
Oil price in 2018 have seen an upward trajectory, touching almost USD 79 per barrel in the recent past.
Oil prices have been rallying for much of 2018 on tightening market conditions due to record demand and voluntary supply cuts led by the Middle East dominated producer cartel of the Organization of the Petroleum Exporting Countries (OPEC).
Unplanned supply disruptions from Canada to Libya and Venezuela have added to those cuts. Yet not all indicators point towards an ever-tightening market. Although output growth is slowing, U.S. crude production is approaching 11 million barrels per day (bpd).
With Russia and Saudi Arabia at similar levels, and output expected to rise as OPEC and Russia ease their supply restrictions, there will soon be three countries pumping out 11 million barrels of crude each and every day.
Trade war fears between US and China and with India as well have dominated negative cues for the Indian market.
US President Donald Trump last week slapped a 25 percent tariff on USD 50 billion worth of Chinese goods, as he accused Beijing of intellectual property theft and unfair trade practices, triggering a full-fledged trade war between the world’s two largest economies.
Reacting to Trump’s latest announcement, China too imposed “equal” tariffs on US products. The 30-share Sensex opened on a somewhat better note at 35,698.43 and slipped further to touch a high of 35,721.55, largely on sustained capital inflows by domestic institutional investors (DIIs) and a drop in global crude prices.
India too increased import duties on some agricultural and steel products that are imported from the United States in retaliation against Washington’s new global tariff on steel and aluminium.
India had earlier this month submitted a revised list of 30 items — including motorcycle, certain iron and steel goods, boric acid and lentils — to the WTO on which it proposed to raise customs duty by up to 50 percent.
Additional Surveillance measures
Investors were spooked by additional surveillance measures introduced by exchanges and the market regulator (SEBI) in a bid to keep a check on erratic moves among stocks.
BSE and NSE have put in place a new framework to shortlist and review stocks under enhanced surveillance measures. Under the new guidelines, public sector enterprises and public sector banks will be excluded from the process of shortlisting of securities under additional surveillance measures (ASM), the exchanges said in separate circulars.
The move comes within a month of markets regulator Sebi initiating a probe into alleged leak of 37 companies being brought under enhanced surveillance before stock exchanges made the list public.
It was alleged that stocks that were to be included in additional surveillance measure were leaked to market operators before the official announcement made by stock exchanges. As per the circular, it has been decided that ASM parameters along with the thresholds will be disseminated by the stock exchanges.
The decision was taken after a joint surveillance meeting of exchanges and Sebi last week.
The parameters for shortlisting securities under ASM are high low variation; client concentration; number of price band hits; close to close price variation and price-earning (PE) ratio.
Foreign institutional investors (FIIs) have been net sellers in the Indian market for a greater part of the year. Barring two months, these have chosen to exit the Indian market, even as dollar sees some strengthening.
FIIs have been net sellers in the market to the tune of Rs 9,100 crore against support visible from domestic institutional investors to the tune of Rs 11,440 crore. But experts are also cautioning regarding weakness in midcaps space that could have a cascading effect on DII flows going forward as well. Higher crude prices and weak rupee could also add to the woes, they added.
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