The Sensex has plunged to a 6-month low, as Foreign Portfolio Investors and individual investors continue to sell heavily into stocks. There are numerous reasons for the same and most seem to have arisen together. Take a look at why the Sensex has plunged to a new 52-week low.
De Monetization to impact GDP
It is clear that the impact of withdrawal of Rs 100 and Rs 500 notes, is going to have a deep and long lasting impact on GDP. There are ongoing reports from several leading brokerages that this is going to impact the quarterly performance of companies, in the near future. Take a look at what some brokerages are saying on the GDP estimates.
Deutsche Bank, Ambit and DBS targets
Brokerage firm Deutsche Bank has cut its target to 25,000 points on the Sensex. That is another steep fall of at least 3 per cent from the current levels. Brokerage firm Ambit Capital has cut its GDP target by a staggering 3.6 per cent, due to the De-Monetization effect. Singaporean brokerage DBS has warned of major downside risks to growth due to the demonetisation exercise, and has estimated that the gross value added can come down by up to 0.80 per cent lower than its 7.6 per cent target.
Heavy selling from FPIs
Foreign Portfolio Investors have started selling heavily in the Indian markets. In fact, they have been selling since the completion of the US Presidential elections, which voted for Donald Trump as the US President. The reason for that is pretty simple: The belief is that Donald Trump's policy would be inflationary, which is already leading to bond yields going higher. When that happens a natural impact would be on the emerging market stocks.
Lokjam in parliament
There is complete chaos in parliament and a lok jam on account of the withdrawal of the Rs 500 and Rs 1,000 notes. This is likely to lead to key legislation being put on hold.
The rupee is falling against the dollar
The rupee is seeing a sharp fall against the dollar on persistent selling by FPIs. A weak rupee means that portfolio value of FPIs in dollar terms is eroding very fast. This can lead to further selling by FPIs.
Bond yields in the US are rising
When US Bond yields rise, there is always a capital outflow from emerging market stocks. This is because investors chase higher bond yields and dump stocks. Bond yields are rising in the US as the belief is that Donald Trumps policies could be inflationary.