MUMBAI: Indian markets slipped to fresh 13-month low on Friday, led by heavy selling in banking and metal stocks, amid a fragile global equity market environment. Analysts said there's a major global risk aversion in emerging markets due to a possible interest rate hike in the US and concerns over slowdown in China.
Sensex dropped 505 points, or 1.95% to 25,259 in post noon trade, its lowest level in the past 13 months. Nifty declined 162 points, or 2.01% to 7,660; the index had broken the crucial level of 7,700 during the intra-day trade.
"The uncertainty over the US Fed rate hike is spooking global markets and the Nifty is no exception. We could witness further downside on the Nifty if the Fed hikes rates in September," said Arun Gopaln, vice president, Systematix Shares and Stocks. But, we believe the Nifty will receive strong support at 7590-7600 levels. Only if the Nifty breaches and sustains below these levels, we could witness a fall to as low as 7100."
Fear Of US FED Rate Hike
Trades are looking forward to US jobs number; a strong data could regenerate possibility of an early interest rate hike in September 17 policy meeting, which could hurt risk assets including emerging market economies.
US is likely report creation of 213,000 new jobs in August, according to economists estimate. Any gain over 200,000 jobs would be seen as a sign that the Federal Reserve will stay on course to raise interest rates this year.
FII Selling Pressure
Foreign institutional investors (FIIs) sold shares worth a net Rs 16,153 crore in August, the highest monthly sell-off since January 2008. This exerted pressure on markets and led Sensex to plummet 6.5% in the month, the worst monthly drop in nearly 4-years.
Foreign institutional investors (FIIs) have turned sellers, offloading Indian stocks worth Rs 394 crore on Thursday, hurting market sentiments. However, domestic institutional investors (DIIs) bought stocks to the tune of about Rs 840 crore.
Slowdown In China
Analysts said the weakening Chinese economy is a big threat to global stock markets. China is the major buyer of commodities like crude and copper and when China doesn't purchase as much countries such as Australia, Canada and Brazil that provide those commodities suffer, which lead to cascading impact on global stock markets.
China's manufacturing sector in August contracted at the fastest pace in three years. Manufacturing data showed its official Purchasing Managers' Index (PMI) fell to 49.7 in August from the previous month's reading of 50.
Bank Nifty In Bear Market Territory
The Bank Nifty entered into bear market territory after banking stocks came under selling pressure, the index has dropped about 23% from its high it touched on January this year. Bank Nifty trading 2.5% lower at 16,133 on Friday.
"Bank Nifty has entered into bear market territory. The crucial support level for the index remain at 16,000, and if it's broken the Bank Nifty can further slide to 15,500," said Dharmesh Shah, head of technical at ICICI Securities. "And for Nifty we expect the index to find major support level at 7,500."
Slowdown in GDP and Earnings Numbers
The first quarter GDP numbers at 7% for this fiscal, which were released on Monday after market hours were below economists' estimates as polled by Reuters, which had projected growth at 7.4%. This hurt market sentiments as many fear slowdown going ahead amid global economic uncertainty.
Sentiments were further hurt after CLSA reduced Sensex target to 30,000, this has been the fourth major downgrade on the index by brokerages houses over past one week. Earlier Macquarie, Barclays, and Ambit Capital have cut their Sensex and Nifty targets.
