Wednesday looks nothing short a repeat of what happened on June 23, the day the Brexit vote results were out. Two unexpected big news – a strong lead for Republican Donald Trump in the US presidential election and Prime Minister Narendra Modi’s massive crackdown on black money with the withdrawal of Rs 500 and Rs 1,000 notes – spooked investor sentiment on Wednesday.
The BSE Sensex was heading for biggest daily percentage loss since August 2015, wiping out Rs 7 lakh crore of equity investor wealth as it fell some 1,000 points.
Going by the buzz on Dalal Street, here are the top five factors dragging the market down in Wednesday’s trade.
Trump ahead of Clinton: Latest update on US vote count showed Republican presidential candidate Donald Trump was leading in 167 seats against Democrat Hillary Clinton’s 133. Various brokerages had warned of a sharp fall in US and global equities to the tune of 3-10 per cent should Trump win the election.
“We have to deal with the fact that this is something we had not expected. Secondly, it is definitely trade negative and the initial reaction is going to be very negative, much like Brexit, probably 5 per cent to 10 per cent drawdown on the S&P500 and similarly broadbased selloff of all risk assets globally,” said Krishna Memani, CIO at Oppenheimer Funds.
Modi crackdown on black money: Everyone from the common man to Dalal Street experts lauded the government’s ban on Rs 500 and Rs 1,000 notes. However, the move is expected to hit many sectors such as real estate and jewellery, where cash transactions and, thus, use of black money is widespread. Sectors like real estate and jewellery that use more of black money will take a big knock, Brickwork Ratings said in a note.
Sectors like real estate, construction material, unorganised trade and services will see significant pain in the near term. With liquidity drying up, both NPA and demand for working capital credit are likely to go up. In view of bank’s ongoing NPA issues, how fast will banks react to this situation will be interesting to watch. With limited tax arbitrage between organized and unorganized segments, India will see much sharper move from unorganized to organized segment,” said Amit Sachdev, Co-foun ..
Co-founder and CEO, CoinTribe.
In volume terms, Rs 500 notes now account for 17.4 per cent and Rs 1,000 notes for 7 per cent of all currency in circulation, adding up to one-fourth of total currency in the economy. Overall, Rs 500 and Rs 1,000 notes in circulation are worth Rs 14.95 lakh crore.
Global turmoil, hunt for safe haven: With a win for Donald Trump in sight, a global meltdown was seen across global stock markets, while firm buying was seen in safe haven assets such as gold and the Japanese yen. Gold prices touched a five-week high in trade on Wednesday. The yellow metal soared 3 per cent in trade.
Valuation concerns: Valuations were a concern for the market after a broader rally from February lows. “Risk-off trade is actually kicking in and at this point if you look at it, when the risk-off trade or when the uncertainty is coming, almost every asset class has rallied strongly over the past six months — be it equity, bonds or currencies. Everything has gone up pretty well in last six months. So you are sitting on high valuations or almost everything priced in and when the ..
the uncertainty is coming, almost every asset class has rallied strongly over the past six months — be it equity, bonds or currencies. Everything has gone up pretty well in last six months. So you are sitting on high valuations or almost everything priced in and when the uncertainty hits you actually at that point of time I think everybody wants to exit the door,” said Nischal Maheshwari of EdelweissBSE -5.88 % Securities recently told ET Now.
Slow earnings revival: September quarter results have not shown enough strength so far to forecast a sharp rebound in earnings in quarters to come. Data showed 1,130 BSE-listed firms have reported double-digit growth in profit during the September quarter. These firms reported 10.04 per cent rise in profit after tax year-on-year (YoY) to Rs 81,942 crore for the second quarter, compared with Rs 74,467 crore reported for the same quarter last year. Sales grew 7.19 per cent YoY to ..
Rs 7,81,692 crore.
“The 7.5 per cent GDP growth is not translating into earnings growth across sectors. When you look at earnings growth across the market, may be even for this quarter, the earnings growth is 7-8 per cent. For the year, as a whole, we may get 7-9 per cent growth. Typically, we get earnings growth which is double of GDP growth. That is not happening. My view is that even for next year we will get closer to 10-12 per cent earnings growth,” said Sridhar Sivaram,Investment Director at Enam Holdings.
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