The BSE Sensex may breach 18,000 levels, while the 50-share Nifty may slip to the 5,200 mark if the current weaknesses in Indian markets intensify. The Sensex is currently trading at its lowest intraday level since November 21, 2011. Markets are oversold so a bounce back in the near term is likely, but the main trend remains down, analysts say.
Here are five reasons driving the markets lower:
- Foreign institutional investors turn sellers: Foreign funds sold shares worth Rs 897 crore in the previous three sessions in a departure from heavy buying that has propped up domestic shares. Overseas investors had bought over $10 billion so far this year and about $25 billion last year and have been the single biggest factor in sustaining Indian markets so far. Lingering concerns about political stability may also have forced FIIs to withdrawal some of their funds from the country.
- Political uncertainty may hit reforms: The government announced a series of reform measures since September after P Chidambaram took over the finance ministry. The government raised diesel prices followed by a slew of reforms including opening up the retail and aviation sectors for foreign investments. However, the DMK's withdrawal from the UPA government may bring an abrupt halt to reforms. Markets have already hit their lowest since the government's 'Big Bang' reforms in September had sparked a powerful rally.
- Weak data continue to dampen Street: Investors are more impatient for signs of a turn in fundamentals, rather than just cheering reform announcements. India's current account deficit is unsustainable at its present level and 7 per cent growth seems too distant in the future. While core inflation has softened, food prices refuse to come down creating pressure on the central bank to hold rates.
- Technical weakness: The Fibonacci levels point to potential pressure. The Sensex is flirting with 18,400 points, which marks the 38.2 percent Fibonacci retracement from its 15,748 low on June 4, 2012 to the high of 20,203 on January 29. A fall below 18,400 could open up the 50 Fibonacci retracement at 17,976 points.
- Global risk aversion is increasing: U.S. stocks ended their worst week this year with losses on Friday after jobs data showed employers hired at the slowest pace in nine months. This was the latest in a series of disappointing economic reports. A report last week showed U.S. factory activity grew at the slowest rate in three months in March.
(With inputs from Reuters)