Indian stock markets continued to reel under intense selling pressure for second straight session, tanking by 500 points in early trade on broad market weakness. Faced by cash crunch over the government's move to demonetise the old currency notes of Rs 500 and Rs 1,000, investor sentiment appeared to have taken a beating in last few sessions, said dealers.
Taking into account the steep fall on Friday, the Sensex has so far crashed 1,200 points in just two sessions amid a mix of domestic and global factors that drove the stocks lower.
Besides the subdued mood prevailing in the market due to the ongoing blackmoney eradication drive, several other factors in play too are playing on the minds of investors leading to a weak market sentiment.
1) Sluggish Asian markets: Markets across Asia are exhibiting a mixed trend, with worries about a possibile US rate hike next month prompting investors to trim their holdings in emerging markets, including India.
2) Rupee takes knock: The domestic currency rupee fell sharply by 40 paise against dollar to 67.65, its lowest level since 30 June, 2016. The trend has been more or less similar against other major currencies, which are declining sharply against dollar ever since Donald Trump won the US presidential election.
3) FII outflows: In the wake of falling rupee against the greenback, foreign fund outflows have been gaining momentum in last few sessions. With the US Fed more likely to hike rates in December and inflation seen hardening there, FIIs are pulling out funds from local equities to move safe havens such as investing in dollar. In last three sessions, FIIs have sold local equities worth Rs 4,168 crore.
4) Weak economic data: Economic data released on Friday showed manufactuing sector grew by a tepid 0.7 percent year-on-year in September, indicating the continuing sluggish growth in factory output. The government, however, remains confident about achieving the growth target of 8 percent for FY17, with good monsoon and hopes of strong consumer spending aiding the sentiment.
5) Consumer stocks fade: Shares of Tata Motors, Tata Steel, Asian Paints, Maruti tumbled over 4-7.5 percent. While the broad indices are down mainly due to fall in real estate / construction related stocks and automobiles, in other major segments, finance-related stocks in addition to construction-related have crashed.
"If you notice, the crash is aggravated also due to the fact that many stocks in gold loan, micro-finance, NBFC and cements were over-valued before this announcement on black money - hence, they are are not able to withstand the stress and they are crashing," said G Chokkalingam, Founder & Managing Director, Equinomics Research & Advisory.