Weakness was also visible in the broader markets
After a weak start, the markets continued their journey south on Monday with the S&P BSE Sensex and the CNX Nifty slipping nearly 2% each to 27,565 and 8,361 levels respectively in intra-day deals.
Weakness was also visible in the broader markets with the S&P BSE Mid-cap and the S&P BSE Small-cap indices losing over 1% each in trade.
Most Asian markets were trading weak on Monday, with the Shanghai Composite slipping nearly 3.2% to 3,947 levels at 12:30pm (IST).
Hang Seng (down 2.7%), Taiwan Weighted (down 2.5%), SET Composite (down 1.5%) and Nikkei (down 1%) also lost ground.
Here are five factors that have contributed to Monday’s fall in the Indian stock market besides weakness in the Asian peers:
Uncertainty around P-Notes: Supreme Court appointed Special Investigation Team in its report on steps needed to check the black money menace has asked the stock market regulator, the Securities and Exchange Board of India, to identify individuals that route funds coming through the controversial P-Note route and also prosecute those using equities for tax evasion.
Participatory Notes commonly known as P-Notes or PNs are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India.
Analysts, however, think that the markets have over-reacted to the development.
Deven Choksey, managing director and chief executive, K R Choksey Shares and Securities, for instance, suggests that these are mere recommendations and not a law and it is a knee-jerk reaction by the markets to this development.
“Today's fall is attributed to partly to the global weakness and also to the developments pertaining to P-Notes.
"We firmly believe that India at this juncture would have challenging tasks ahead, if there is any abrupt restrictions on foreign investments flowing through P-Notes as the foreign investors have over $300 billion worth of Indian equities and at the same the domestic capital markets do not have any appetite to absorb any significant selling by them.
"So options to India are limited and hence, we believe that the markets have over-reacted like the way they have done many occasions on the GAAR issue in the past,” addec G. Chokkalingam, founder & managing director, Equinomics Research & Advisory.
US Federal Reserve meeting: Investors are also keeping a tab on the outcome of the US Federal Reserve’s meeting on 28 -- 29 July for cues on the possible rate hike.
“A strong jobs report in US has increased the probability of an earlier rate hike in US,” points out Dipen Shah, Head of Private Client Group Research at Kotak Securities.
F&O expiry and Parliament logjam: The sentiment on Monday, and over the next few sessions, will also be impacted by the expiry of the derivative contracts for July series this Thursday, 30 July amid a likely washout of the Parliament’s monsoon session that has already delayed the passage of crucial bills like the GST and the Land Acquisition bills.
Corporate results: According to a recent Business Standard analysis, Indian companies' June-quarter earnings could be worse than in the previous three-month period.
Growth in reported net profit of the 215 companies that have announced their results so far (excluding banking and financial services ones) has been 5% over a year ago, compared with 12% in the March quarter. Even for the 14 companies of the 50 on the Nifty (excluding banking and financial ones), net profit growth of 4.2% has been below Bloomberg's consensus estimate.
RBI meeting on August 4: Market participants will also be eyeing the upcoming review of the Monetary Policy by the central bank. Analysts suggest that a rate cut by the RBI could be the next trigger for the markets. However, the central bank could maintain status quo for now.