The status quo that marked the month of June has given way to negative sentiment in the minds of investors causing the stock markets to crash to new lows.
The immediate cause for the crash was the Budget neither promising nor delivering on any really deep pro-market or pro-growth expectations that were raised in the wake of the Congress party winning a tangible majority in the Lok Sabha in the recently-held elections.
More than that, the spending on the social sector that has been earmarked by the Finance Minister is likely to drive the fiscal deficit to 6.8 per cent. Except for an outlay on infrastructure, the government is gambling its huge spending programmes will make the economy get out of the slowdown. However, even the infrastructure outlay has not been a great driver of sentiment as is clear from the fact that Reliance Infra has fallen by 20.3 per cent during the week.
Not impressed with the government’s intent, nor the current valuations, the foreign institutional investors, who are the biggest drivers of the Sensex, voted with their feet and have withdrawn huge amounts from the markets, causing the index to post its biggest weekly fall in 2009. The poor monsoon added to the worry on the bourses.
The index fell by 1.8 per cent, shedding 253.24 points, to 13,504.22 on Friday and sealed the fate of a new record for this year. More than that, this is the biggest weekly fall logged by Sensex in almost 8 months. Nifty fell by 1.9 per cent to 4,003.90 points.
Good news emerged from one of the blue chips, Infosys, whose stock has gained on the back of the company posting strong quarterly gains. It announced that in the June quarter profit jumped 17 per cent and although it sent a warning that the IT sector was still facing huge problems, yet this did not prevent it from rising 3 per cent to Rs 1,726.50.
However Infy was still not able to climb into the weekly gainers bandwagon, which consisted of just three stocks: ITC (9.7%), Maruti Suzuki (4.5%) and TCS (0.8%). All the other 27 Sensex stocks ended up losing during the week. Among the biggest losers was Reliance Infra (-20.3%), Tata Steel (-19.4%), DLF Ltd (-17.3%), Reliance Com (-17.2%) and ICICI Bank (-16.6%). Infosys lost 4.5% for the week -- Sensex lost 9.4 per cent, Nifty fell by 9.5 per cent.
With most political and economic dynamics factored into the markets, the attention is going to go back to company valuations and markets are going to take cues from that. The timing is right too as the quarterly numbers are all set to flow in.
Among the negative global cues that the Indian markets have been reacting to are coming from the US, where the Dow Jones and Nasdaq have been on a falling spree, while the bourses in Europe have fallen for the fourth straight week. It fell 3.4 per cent over the week. Concerns over global recovery are still strong and the economic data flowing from the US and Europe are not pushing negativism away at all.