Weighed down by IT stocks, Indian benchmark indices slipped nearly 1% on Wednesday. The Sensex ended down 184.52 points at 22,323.90, while the Nifty dropped 62.75 points to 6,652.55, their three-week and six-week lows, respectively.
The IT space turned a drag on the market after foreign brokerage UBS downgraded IT major Infosys and added the stock to its least-preferred scrips. UBS reduced its rating of Infosys from ‘buy’ to ‘sell’ and cut the target price from Rs 4,050 to Rs 2,750.
The Street also turned cautious that the Indian currency may gain further ground if the BJP-led NDA comes to power at the Centre with a decisive victory. The rupee rose to above 60-level at 59.96 against the dollar, but surrendered the gain to settle the day lower by a marginal two paise at 60.13 as a sudden demand for the US currency emerged at the fag end of trade. While HCL Tech, Infosys and Tech Mahindra lost 4.5% to 3%, TCS fell 1.5% in Wednesday's trade.
Meanwhile, foreign institutional investor (FII) purchases have tapered since the second half of April, though their year-to-date buying stood at a robust $5.46 billion. Traders say while hopes of an NDA win have gone up in the last one month, FIIs are curtailing their exposure to avoid any unforeseen outcome.
According to HSBC, while the new government can bring change, it would not be reflected overnight and that even a government with a strong mandate and political will needs time to address ‘structural’ bottlenecks.
In a report, the brokerage noted that any recovery would be ‘very protracted’ as tighter monetary and fiscal policies tackle economic imbalances. “High corporate leverage and a deterioration of banks’ asset quality are also constraints,” added the note.
In April 2014, FIIs purchased Indian stocks worth $1.2 billion, two-thirds lower than the previous month. Union Bank, HDFC Bank and Yes Bank were some of the laggards from the banking and finance space, which fell 3% to 2% on Wednesday.