Markets in bear grip: 5 reasons why Sensex and Nifty are falling

Here are the reasons why Sensex and Nifty extended losses for a sixth straight session today.

New Delhi: The cup of woes for Indian stock markets brimmed over to the sixth day on Tuesday as continued tensions on the Korean Peninsula prompted investors to move into safer assets.

The NSE index posted its longest losing streak in nearly three months, while the BSE index posted its longest falling run in nine months.

The Sensex traded at 31,517.99, down 108.64 points, or 0.34 percent. The gauge had fallen 797.13 points in the previous five sessions.

The broader Nifty too fell below the 9,850-level to 9,837.85.

Below are the reasons why Sensex and Nifty extended losses for a sixth straight session today.

Geopolitical tensions

With global equity markets in risk off mode over Korean tensions, the ongoing weakness in Indian markets has gained more momentum.  As per market expert, apart from continuous foreign fund outflows, deep losses at other Asian bourses and the US markets as investors reacted with dismay to lingering worries about North Korea nuclear crisis led to a slide in the Indian equities.

North Korea’s foreign minister said on Monday that the United States had declared war on the country and Pyongyang reserved the right to take countermeasures.

Another Fed rate hike hint

Sentiment was also weakened against the backdrop of imminent Fed rate hike and unwinding of its stimulus measures. The US Federal Reserve has reaffirmed its intention to hike rates in December and normalising its crisis-era stimulus programme into reverse from next month.

Fears of fiscal imbalance

Hardening speculation of widening fiscal deficit after the government indicated a stimulus package meant to jump- start the nation's ailing economy put trading mood into further disarray. The GDP expansion hit a three-year low of 5.7 percent in the April-June quarter with India losing the fastest-growing economy tag to China for the second straight quarter.

Besides falling GDP growth rate, exports are facing strong headwinds and the industrial expansion hit the lowest in five years. There is an increased speculation over a possible fiscal stimulus which can go above Rs 40,000 crore after six successive quarters of dip in the economic growth.

FII outflows

There was no let-up in foreign selling as foreign portfolio investors (FPIs) sold shares worth Rs 1,249.45 crore yesterday, showed provisional data from the stock exchanges. They have pulled out nearly Rs 5,500 crore from local equities so far this month due to geopolitical concerns and a tendency to take profit.

High valuation

The Indian equity market is now trading at a premium to its historic average. The Sensex is trading at 18.18 times one-year forward earnings, compared with five-year and 10-year historical averages of 15.24 times and 14.98 times, respectively.

However, sounding a note of caution, experts are saying that high stock market valuation driven by excess liquidity is temporary and going forward it will revert to normal levels.