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Worst weekly performance in 18 months, with a fall of 5%; analysts expect volatility to continue

Pavan Burugula  |  Mumbai  August 11, 2017 Last Updated at 19:37 IST

Continuing tension between the and weighted down Indian equity as the benchmarks closed more than 1 per cent lower. While the lost 317 points, or 1 per cent, to close at 31,213, the gave up the crucial 9,800 mark to close at 9,710, down 109 points, or 1.1 per cent. This is the fifth straight session of declines for the Indian benchmarks, making it the worst weekly performance since February 2016. During the week, the fell a little over 5 per cent, data showed.

The broader outperformed the benchmark indices on Friday as the mid- and small-cap indices closed flat. While Mid-cap was down 0.4 per cent, the Small-cap remained unchanged.

The Indian markets, which scaled new heights until last week, have come under selling pressure ever since tension between the and flared up. Not just Indian markets, the deadlock has impacted global equities. The benchmark 500 has lost 1.3 per cent in the week so far while Euro Stoxx and FTSE were down by more than 3 per cent each.

“Global equities led by have been trading at exorbitant valuations for the past few months. The tension between and has acted as a trigger for a correction. The Indian will continue to remain under pressure for the next few sessions as global funds rebalance their portfolios. However, large caps are expected to be relatively stable as the broader will experience steeper correction,” said G Chokkalingam, founder, Equinomics Research & Advisory.

Going forward, analysts expect the large institutions, especially foreign funds, to remain on the sidelines in the equity On the other hand, safer heavens like bonds and gold could witness traction. On Friday, the rupee strengthened against the dollar by 0.1 per cent to close at 64.13. The average yield on Indian gilts shot up by 0.6 per cent on Friday to close at 6.507 per cent.

However, analysts are ruling out any major correction in the as there is still enough liquidity. The cash market volumes have hit an 18-month high in the past month, signaling strong buy-side demand.

“Indian mutual fund houses have about Rs 35,000 crore of idle cash. Hence, even a sell-off in the will be met by large volume purchases, creating a virtuous cycle and encouraging further flows,” said Sunil Sharma, chief investment officer, Sanctum Wealth Management.

Friday’s fall was led by State Bank of India (SBI), which slumped 5.36 per cent on the back of concerns about its increasing non-performing assets (NPAs). Mahindra and Mahindra (M&M) and Reliance Industries fell 3.1 per cent and 2.4 per cent, respectively. Foreign portfolio investors (FPIs) sold equities worth Rs 1,943 crore ($300 million) while domestic institutions purchased equities worth Rs 2,016 crore.

Metal stocks were the worst hit with the Metal index falling 3.6 per cent. Pharma was the only major sector that registered gains with shares of Marksans Pharma, Dr Reddy’s Laboratories and Aurobindo Pharma gaining more than 3 per cent each.

The current correction is expected to moderate the overheated valuations of Indian This week’s correction has brought down the one-year trailing price-to-earnings (P/E) ratio of the from 24 to 22.9. This moderation of valuation could make Indian more attractive.