Budget 2014, global factors pull down BSE Sensex by 3.6 per cent

The BSE Sensex fell nearly 940 points, or 3.6 per cent, to 25,024 in the week ended July 11. It touched an all-time intra-day high of 26,190 on July 8.

The triggers for this week's fall, say experts, are the pressure points in the global economy and selloff after the Union Budget for 2014-15.

Experts say that US and European markets, which were giving support to our markets, were weak during the week, especially after the US Fed indicated that it might increase interest rates. The markets could further correct in the coming week.

Alex Mathews, head of research, Geojit BNP Paribas, says, "The latest crisis in Portugal's bank, Espirito Santo International SA, will spread concerns about its accounting standards as the parent has missed some debt payments. Due to this, yields on the Portugal's government bonds have spurted, worsening the crisis."

Globally, the Fed's minutes revealed it plans to tighten its monetary policy and most likely end its asset purchase programme in October. Further, the UK's industrial production declined 0.7 per cent in May, after rising 0.3 per cent in April.

"These negative cues coupled with mixed sentiment about the Budget among the investor community kept markets volatile this week," says Mathews.

Among sector indices, the BSE Power index plunged the most (10.2 per cent to 2,129.7). It was followed by the BSE Capital Goods index (down 10 per cent to 14,969), BSE Realty (down 9.2 per cent to 1,906), BSE Consumer Durables (down 8.4 per cent to 8,335.20), BSE Metal (down 7.7 per cent to 12,400) and BSE Auto (down 6 per cent to 15,123.40). BSE FMCG and BSE IT indices gained 0.9 per cent to 6,877 and 0.2 per cent to 9,329.20, respectively.

Reports suggest that the valuation of Indian markets is much higher than that of the MSCI emerging market index, which is trading around 11.1 as against the Nifty's 15.4. This, say experts, is leading to concerns over a possible correction.

In the BSE 100, Titan Company, HDFC Bank, Divis Laboratories, TCS, Cipla, Dabur India, Asian Paints, Sun Pharmaceuticals and Adani Ports and SEZ touched their all-time highs during the week.

The government tabled its Budget for 2014-15 on Thursday. As expected, it did not come up with any big-bang changes to the interim Budget presented by the previous UPA government.

In the Budget, the government has given a realistic picture on the fiscal deficit by pegging it at 4.5 per cent of GDP. Finance Minister Arun Jaitley pegged the 2015-16 fiscal deficit target at 3.6 per cent.

Rakesh Goyal, senior vice president, Bonanza Portfolio, says, "We believe the picture is once again slightly rosy considering the prevailing economic situation and the state of economic activity globally. In the coming week, we expect the markets to correct to adjust for the gap between the actual budget outcome and market expectations. Further, lack of clarity on the Iraq crisis and developments in the US on monetary easing shall keep the markets on their toes."

Foreign institutional investors bought shares worth Rs 4,081 crore during the week.