Across both exchanges, all the sectoral indices closed in red. However, interest rate sensitive sectors like realty and banking stocks bled the most. According to Shanu Goel, Senior Research Analyst at Mumbai-based Bonanza Portfolio Limited, Nifty has tested the lower support level of 4720-4700. "The intermediate trend continues to be bearish," says Goel. "Whether this level will be breached is still to be seen but the uncertain local as well as global developments continue to cast a shadow on the stock market."
Internationally, the US and European indices closed the day in red while, in Asia, all markets except for Japan, Taiwan and Korea posted losses between 0.09 per cent and 1.90 per cent. Globally, as in India, investors have been exercising caution ahead of the key speech by US Federal Reserve Chairman Ben Bernanke in Jackson Hole, Wyoming and also the revision of US second-quarter growth estimates. Foreign institutional Investors, or FIIs, were net sellers for the day to the extent of $324 million (Rs. 1,494 crore). In the current month alone, FIIs have registered net outflow of $ 2.48 billion (Rs. 11,222.40 crore) which signals that the bears seem to be outnumbering the bulls. "In general, equity sentiment has turned weak," says Sanjeev Zarbade, Vice President - Private Client Group Research at Kotak Securities. "This coupled with FII selling is resulting in the markets drifting downwards," Zarbade adds.
While globally the macro economic concerns around sovereigns are raising investors' nervousness, the emerging economies, including India, are battling higher inflation. With regulators shifting their stance towards managing the price scenario, growth priorities are taking an evident backseat, as rising interest rates threaten growth. While experts expect Bernanke to be cautious and weigh the pros and cons of a third round of quantitative easing, or QE3, the possibilities of the same are quite high. "Economic recovery has still remained soft, thereby triggering expectations of another stimulus package in the form of QE3," says Zarbade of Kotak Securities.
A QE3 at the current juncture could hurt emerging economies on the inflation side as commodity prices could jump up, as witnessed in the previous two rounds of easing by the US. "Its outcome is likely to influence the market trend in short term," says Goel of Bonanza.