Equity markets declined for the third day on Wednesday. After tumbling 259 points on Tuesday, the benchmark BSE Sensex slipped 216 points on Wednesday, tracking weak global cues as investors sweated over mounting tensions between US and North Korea.
Domestically, some profit booking was also seen, while investors were worried over Securities and Exchange Board of India's crackdown on shell companies this week. On Tuesday, the market regulator had issued a circular to stock exchanges to take action against 331 listed companies, which included several mid-size profitable companies. Trading in these firms has been restricted to just once a month.
On Wednesday, the Sensex closed 216 points or 0.7 per cent lower at 31,797.84 and the Nifty50 declined 70 points or 0.7 per cent to 9,908.05 points.
Globally, geopolitical tensions, President Donald Trump warning North Korea it could expect “fire and fury” if it continued to threaten the US and Pyongyang in turn threatening retaliation, singed equity markets, with investors scurrying for safe haven assets like gold. In international markets, gold rose 0.6 per cent to around $1,268 an ounce.
“Rising geopolitical tensions resulted in market indices ending lower for third consecutive session today amid some more profit booking,” said Sanjeev Zarbade, vice president, private client group research, Kotak Securities.
In Asia, Japan's Nikkei Stock Average tumbled 1.3 per cent, South Korea's Kospi declined 1.1 per cent and other major markets like Hong Kong's Hang Seng, Singapore's Straits Times, and China's Shanghai Composite also ended in the red.
Most European markets were also trading lower, with London's FTSE 100 down 0.8 per cent, and France's CAC40, German DAX and Madrid General Index slipping around 1.50 per cent.
Back home, the Sensex, which had rallied 21 per cent since January this year, has now declined 528 points or 1.6 per cent over last three trading sessions.
Pharma, auto and select bank stocks were among the major losers on Wednesday.
Analysts said the equity markets were trading at relatively higher valuations, the Sensex price-to-equity ratio was at over 24 times, against the last ten years average of around 19 times; and with a broader earnings pickup yet to be seen, strong inflows alone couldn't sustain these valuations.
“Faith and hope have driven Indian markets to a level where the gap between perception and ground realities is stark...We believe, investing more and more based on the assumption that liquidity alone would continue to support can prove to be futile and risky at this juncture,” said A.V. Srikanth, CEO of Citadelle Asset Advisors.
He feels corporate earnings could blip for a couple of quarters due to rollout of the Goods and Services Tax before there is any meaningful revival in earnings. However, the market “needs to tone down lofty expectations of earnings growth,” he added.
Kotak's Zarbade also advised investors to be extremely cautious, particularly in the wake of Sebi's action against 331 firms, suspected of being shell companies.
“In the context of the recent announcement by Sebi, we reiterate that investors to strictly invest in companies with good corporate governance and strong balance sheets,” he said.
Analysts, however, remain confident on the medium-to-long-term growth prospects of the equity markets.
