Sensex Suffers 1,000-Point Loss On Foreign Portfolio Investor Sell-Off And Global Weakness

Indian stock indices took a sharp hit Friday, the last trading day of the current week, with all sectoral indices closing deep in the red. The sell-off was broad-based, with the banking and energy sectors taking the biggest hit.

“The recent weakness in U.S. markets has stalled the momentum in Indian markets, causing participants to become cautious ahead of the upcoming jobs data,” said Ajit Mishra, SVP of Research at Religare Broking.

Weakness in global markets and selling by foreign portfolio investors seemed to have hurt domestic market sentiment.

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Vijay Chopra, a market expert, commented, “The correction of 2 to 3 percent is not a fall, as the markets are trading at an all-time high. The reason for this selling is the reports that non-registered FPIs will not be able to operate in the market, which is also creating pressure. The markets are also sensitive ahead of the Fed rate cuts; if the Fed announces a rate cut, the markets will rebound strongly.”

Today marks the deadline for foreign investors to disclose beneficial owners. According to SEBI, failure to comply may result in the disqualification of FPIs from investing in India, and they would need to wind up their investments. Experts cited this as a probable reason for the selloff. This move is part of SEBI’s broader effort to curb the misuse of the FPI route by anonymous or “benami” investors, thereby strengthening market integrity. Non-compliant FPIs, especially those that lack proper Know Your Customer (KYC) documentation, have been offloading their holdings, contributing to today’s broad market sell-off, said analysts.

“The domestic markets touched record highs at the start of the week and subsequently ended the winning streak as the week progressed. The overheated segments of the markets have seen some profit booking and may be an indicator that earnings would incrementally dictate price movements,” said Joseph Thomas, Head of Research at Emkay Wealth Management.

From a global perspective, the focus is now on the economic data coming from the U.S. to gauge the direction and the quantum of Fed interest rate movement in the upcoming monetary policy meeting. U.S. Federal Reserve Chair Jerome Powell gave a strong indication that it was time for the U.S. central bank to reduce interest rates as inflation rates were aligning with its target. Addressing the Jackson Hole Symposium last month, Powell said that “the time has come for policy to adjust” but stopped short of giving a hint on the quantum of interest rate cut. The U.S. Fed held the policy rate steady since July 2023.

Globally, markets are uncertain amid major economic data expected today, including U.S. payroll data and Fed rate cut expectations.

“Domestically, political risk is rising with state elections coming up and with a major ruling coalition partner hobnobbing with opposition leaders,” said Ajay Bagga, a veteran banking and market expert.

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