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Sensex posts biggest weekly drop in nearly four years

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Indian equities slid to near 14-month lows on Friday, with the benchmark indices retreating more than 2% and posting their steepest weekly loss in nearly four years, as caution ahead of a key US jobs data spooked global markets.

The benchmark BSE Sensex’s weekly fall 4.5%, was the biggest weekly fall since November 2011. On Friday, the 30-share Sensex tanked 2.18%, or 562 points, to 25,201.

The 50-share Nifty slipped below the crucial psychological level of 7,800 to close at 7,655 points, down 167 points, or 2.15%.

Nervousness ahead of the US payrolls data and its impact on the Federal Reserve’s decision to hike interest rates when it meets on September 16-17 kept investors on the tenterhooks. Notably, the Shanghai and Hong Kong stock markets remained closed on Friday to commemorate the 70th anniversary of the end of World War II and are slated to reopen on Monday.

“Several long investors pared their positions on Friday because of the nervousness surrounding the US jobs data and the uncertainty around how the Chinese markets would open on Monday. It seems there was some delivery-based selling which has exaggerated the impact of the fall on Friday,” said UR Bhat, managing director, Dalton Capital Advisors (India).

The global risk-off sentiment has seen sustained foreign outflows from the Indian market. Foreign institutional investors (FIIs) have sold shares worth around Rs 19,700 crore in the last 12 sessions, excluding Friday.

On Friday, FIIs sold shares worth Rs 1,287 crore, while domestic institutional investors sold shares worth Rs 1,128 crore, provisional data shows. In August, overseas investors pulled out a record Rs 17,000 crore from the Indian market.

“The weakness we are seeing in the Indian market is part of the overall global correction. Market conditions might continue to remain weak for some more time. In the short term the risk aversion will prevail overall our positive domestic macro,” said Vikas Khemani, president and head wholesale capital markets, Edelweiss Securities.

All of the Asian indices ended in the red on Friday, with Japan’s Nikkei 225 falling the most at 2.1%. Kospi and Straits Times retreated by more than 1% each. Key European indices – FTSE 100, DAX and CAC 40 – were all trading deep in the red, down between 1.6% and 2.1% at 5.00 pm India time.

Back home, market breadth was weak with 2,116 declines compared with 574 advances on Friday. Twenty eight out of 30 Sensex companies ended in the red. All of the 12 BSE sectoral indices on the BSE ended in the red, with the BSE Realty and BSE Power indices declining the most by more than 3% each.

It’s been a turbulent week for Indian equities with the market ending lower on four sessions. Weaker than expected GDP data for the quarter ended June combined with a slower pace of core sector and factory growth has raised worries about a pick-up in the economy. India’s GDP growth slowed to 7% in the three months to June from 7.5% in the previous quarter, data released by the government after market close on Monday showed.

On Thursday, the services data as measured by the Nikkei/Markit Services Purchasing Managers’ Index grew for a second month in August. The Index rose to 51.8 in August from July 50.8 level. The level above 50 shows an expansion.

Market experts said the government will have to push ahead with its reform agenda to spur growth and revive investor confidence back to ensure India withstands the global turbulence triggered by fears over China slowdown and interest rate increase by the US Federal Reserve.

Analysts have started downgrading the Indian markets due to delay in the earnings recovery. In the past few days, Macquarie, Barclays and Ambit have lowered their price target for the Indian markets, citing weak earnings growth.

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