The Sensex and the Nifty saw their worst one day decline in months, as a host of factors impacted the markets, as Foreign Portfolio Investors sold heavily into stocks. The Sensex ended the day with a staggering loss of 447 points, while the Nifty dipped 157 points in trade. The markets ended with cuts of more than 1 per cent for the week.
North Korea tensions back in the spotlight
Tensions on the Korean peninsula were back in the limelight. President Donald Trump signed a new measure that expanded the Treasury Department's authority to target people and institutions conducting business with North Korea. In turn, North Korean leader Kim Jong Un said that Donald Trump would "pay dearly".
Most Asian markets saw large scale selling pressure with the Hang Sang dropping by 1 per cent, while the Japanese Nikkei was down 0.20 per cent in trade. Investors were also unwilling to take positions ahead of the weekend and sold heavily.
Worries over the widening fiscal gap
Investors also largely remain worried over the possibility of the fiscal gap widening in the coming days.
The government had hinted at fresh stimulus measures to revive the economy after GDP for the quarter ending June 30, 2017, slumped to 5.7 per cent - its worst levels in three years. Investors now remain worried that the stimulus measures by the government would lead to the fiscal gap widening over the targeted levels of 3.2 per cent for FY 2017-18.
This led to some severe selling pressure, particularly from foreign institutional investors.
Fall in the rupee
The rupee fell to its lowest level since April, 2017, dropping by a whopping 0.50 per cent. Heavy demand for dollars from Foreign Portfolio Investors (FPIs) ensured that the rupee remains under pressure. In fact, the currency has remained under tremendous selling pressure for the last few days. Analysts see the currency weakening further, if FPIs continue their selling pressure.
On Thursday, FPIs sold a staggering Rs 1200 crores worth shares and have been consistently selling shares, which have been mopped up by domestic institutions.
There is a section of the markets that now believe that valuations are stretched and every rise in the markets should be sold into. India is among the most expensive markets in the world in terms of p/e of benchmark indices.
Most analysts are warning that markets have turned bubble valuations. Even IPOs have started pricing their offerings at 50, 60 and 70 times p/e. They say that it is time get cautious and take some money off the table.
Weakish global cues
Global cues on Friday were weak, with most of the Asian markets trading lower. In fact, European markets too pointed to lower openings. This is the third consecutive day that the Nifty has been falling.
Heavyweight ICICI Bank also lost ground and was down 3 per cent in trade. Wipro and Tata Motors managed to hold ground in trade. In fact, Tata Motors shares showed tremendous strength in early morning trade, only to fall as the selling aggravated. Markets are expected to fall next week as well, if the North Korean crisis aggravates.