Foreign institutional investors (FIIs), so full of certainty at the end of last year, seem to have again been assailed by doubt as domestic political worries, the possibility of non-state companies being examined by the government auditor and global economic factors weigh on the markets.
The Sensex fell for the fifth consecutive session, possibly the worst beginning-of-theyear performance since 1996, when the country was in the grip of political uncertainty ahead of elections. That year saw the United Front forming a government that wasn't able to complete its term.
AAP effect: After sizzling 2013, foggy start for Sensex in 2014
Eighteen years on, markets are worried about populist measures taking hold following the surprisingly strong showing of the anti-corruption Aam Aadmi Party (AAP) in the recent assembly elections that led to it forming the government in Delhi.
Such a surge during the general election could mean AAP winning seats in Parliament, and possibly a fractured verdict. Markets had risen last year on investor perception that the Narendra Modi-led
perception that the Narendra Modi-led Bharatiya Janata Party was advantageously placed ahead of the election.
In the first five trading days of the New Year, the Sensex has dropped 2.26%, or 477 points, closing at 20,693 on Tuesday, when it declined a further 0.45%.
The broader index CNX Nifty of the National Stock Exchange fell 0.47% to 6,162 on Tuesday. Both the Sensex and Nifty are down 4% from their all-time high on December 9, reached a day after results of state elections were declared.
MARKETS CONCERNED ABOUT AAP
BJP had won in three states and bagged the highest tally in the fourth. However, the saffron party declined to form the government in Delhi as it didn't have a majority. AAP later formed the government in the city state with the backing of Congress, which suffered heavy losses in the assembly polls. "Markets are concerned about the rising momentum behind AAP," said Andrew Holland, CEO, Ambit Investment Advisors.
"There are expectations that the new party's rise in elections could lead to a hung Parliament." FIIs - which bought stocks worth $20 billion in 2013 and sent the markets to new highs - are net sellers so far this year. They offloaded stocks worth Rs 463 crore between January 1 and January 6.
Domestic institutional investors sold shares worth Rs 692 crore. Provisional figures on Tuesday suggested that FIIs were net sellers worth Rs 567 crore. The rupee, consequently, is down 0.83% so far this year, having ended at 62.30 per dollar on Tuesday.
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