The Indian markets declined for the fifth straight session as the setback for the ruling Bharatiya Janata Party (BJP) in Karnataka along with rising crude oil prices in the global markets weighed down investor sentiment. The benchmark Sensex lost 232 points, or 0.67 per cent to close at 34,616, while the Nifty was down 79.7 points, or 0.75 per cent to close at 10,516. The Sensex has declined 2.6 per cent in the last five sessions.
Analysts expect the Indian markets to remain volatile in the near- to medium-term on account of multiple headwinds. The Karnataka election outcome has sparked fears that the central government could take a step back from the reform agenda and instead opt for more populist measures ahead of the general elections in 2019.
Spiralling oil prices is another key concern for the Indian markets since it could have a destabilising effect on the country’s fiscal deficit and economy. The price of oil has surged 46 per cent in the past one year and is currently trading at $77.6 a barrel.
“The markets will remain volatile in the coming months due to global factors such as rising crude prices. While our fiscal deficit looks well under control for now, it could be hit if the crude prices continue to remain high. Rising US bond yields and heightened political activity are other key headwinds for the Indian markets right now,” said B Gopkumar, chief executive officer, Reliance Securities.
Pharmaceutical stocks were the biggest losers on Monday with shares of Sun Pharma and Dr Reddy’s Laboratories falling more than four per cent each — the most for any Sensex companies. HDFC Bank and HDFC contributed to nearly half of the Sensex fall.
The market breadth also remained negative with the BSE mid- and small-cap indices losing 1.64 per cent and 2.24 per cent, respectively. The market breadth deteriorated further as more than half of the Sensex companies closed below their 200-day moving average (DMA).
Experts say the current volatility in the Indian markets is more on account of global factors than domestic. The hardening of US bond yields coupled with the strengthening of the dollar has prompted the investors to trim their equity exposure and move to safe heavens.
The dollar index, a measure for the performance of the US dollar against six key currencies, climbed to its highest level in 2018 last week.
Several emerging markets, including India, have seen a sell-off from overseas funds on account of these factors. On Monday, foreign portfolio investors (FPIs) net sold equities worth Rs 4.96 billion, while domestic institutions net purchased equities worth Rs 11.9 billion, data showed.
FPIs have net sold shares worth $1.5 billion from Indian markets since April. In May, FPIs offloaded shares worth $600 million, data showed.