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Experts attribute market fall to oil price shock, slowing economy and weak earnings

Updated : September 17, 2019 05:15 PM IST

Market benchmark BSE Sensex on Tuesday plummeted 642 points as investors weighed India's fiscal worries due to soaring crude prices in the wake of growing geopolitical tensions in the Middle East.

After nosediving 704 points, the 30-share index ended 642.22 points, or 1.73 per cent, lower at 36,481.09. The broader NSE Nifty too settled 185.90 points, or 1.69 per cent, down at 10,817.60.

Dhananjay Sinha, head of strategy research and chief economist, IDFC Securities is of the view that the selling in the market could be due to many domestic concerns like consistent FII selling, growth worries and prolonged slowdown.

"The market could be worried about the near-term outlook with respect to second-quarter earnings, where numbers are not likely to be good. Form the global standpoint, the spike in crude prices and the uncertainty in that market could have been read as negative by the market," Sinha said.

With regards to earnings growth, Sinha said, "Reaching 10-12 percent growth for FY20 also may not be possible and we could end up with 8-10 percent growth for the year. The first half of the year is likely to be weak and I don’t think to scale it down to 10-12 percent would be ending the downward revision. There would be tapering of earnings even during the second quarter. However, we are hopeful of a better second half and that could help us come closer to 8-10 percent."

According to Jai Bala of Cashthechaos.Com, "The market has been in consolidation in a triangular pattern since last few weeks and it has broken out of that pattern. Now that Nifty has fallen below 10,880, it could go to levels of 10,300. The main drag for the fall would come from the Nifty Bank and it will most likely be the private sector banks. The Nifty Bank could fall to levels of 25,400 to 26,000."

Bala said Axis Bank looks the weakest and could break levels of Rs 600 and he is negative on Larsen and Toubro, which could see levels of Rs 1,250-1,200, "Would be cautious on Reliance Industries, HDFC and HDFC Bank. On HDFC, one could see levels of Rs 1,700-1,650 and HDFC Bank close to Rs 1,900."

Amit Dalal, executive director, Tata Investment Corp said, "What happened in Saudi Arabi poses a risk going forward. Brent at $68 per barrel is showing far more resilience to higher levels than expected and if they cannot resume production in the short period of time, then crude prices would move higher.

With regards to the domestic market, Dalal said he would remain range-bound between 10,500 and 11,000. This range could hold until we get some news of improvement in the economy.

"Generally consensus is that the trough in the economy is behind us, interest rates are much lower and the general focus of the government is to see that the economy starts reviving,” said Dalal, adding that we may not get appreciation for next 2-3 months but the range is sturdy and strong unless oil goes completely for a toss.

Saurabh Mukherjea, founder of Marcellus Investment Managers is of the view that whenever there is an oil price shock like this, there is a kneejerk reaction from the market, "Given the importance that imported crude plays in our lives both in terms of the budget deficit and in terms of the currency, such a sharp run-up in the oil price is bound to be there. It doesn’t help that the economic backdrop is also weak, I think by all accounts August was a washout and that is what most companies have told me and September hasn’t gone well for most companies."

With regards to the economy, Mukherjea said, "The Q2 of September is likely to be the lowest point in the growth cycle I reckon. In that regard, if oil holds at this level from an oil price perspective, the market has absorbed the shock. The adverse GDP print from September I think hasn’t yet been factored into the market. I don’t think people are fully realised that the June print can actually get worse and therefore the July, August and September print can be worse than June."

Ajay Srivastava, CEO, Dimensions Corp Financial Services said, "There was a lot of optimism build in last week or so, there was buying into midcaps, large caps and suddenly the economics change with this spike in crude prices. This also changes the fact that in the next monetary policy meeting on October 4, our central bank may not be able to cut interest rates with oil at $68/bbl and rupee at where it is."

"So if this oil issue does not resolve, the whole premise of the market of falling interest rates comes in a doubt. If interest rates don’t fall and that ammunition is out of the window, so is the GST rate cut, so is the fiscal stimulus, then it will take its own course. So, it is a good idea to sell out if you have built up position, book your loss and hold on," Srivastava said.

Disclosure: Network18, the parent company of CNBCTV18.com, is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
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