Indian Shares Fall Most Since Brexit Vote

Indian shares extended their losses on Wednesday, falling most since the global selloff that was triggered by U.K.'s decision to leave the European Union on June 24. The day's losses came amid concerns that the rally fueled by capital inflows has outpaced the outlook for earnings growth.

The S&P BSE Sensex declined 1.1 percent to 27,774; while the NSE Nifty dropped 1.1 percent to 8,575. All 19 sectoral gauges on the Bombay Stock Exchange ended lower. Energy, auto, healthcare and consumer discretionary benchmarks falling the most.

The market breadth was skewed in favour of the bears as 1,893 stocks declined versus 835 advancing stocks while 137 stocks remained unchanged on the Mumbai-based exchange.

Foreigners have bought a net $5.1 billion of local shares this year, the most after Taiwan and South Korea, as flows to emerging markets accelerated amid a wave of global policy easing triggered by the Brexit vote.

The 22 percent climb from a February low has pushed up the Nifty's price-to-earnings ratio to near the highest in 15 months.

“Historically, markets tend to change its course once the one-year forward PE moves past 21,” Hadrien Mendonca, technical analysts at IIFL told BloombergQuint in a phone interview.

He said the Nifty has broken down from a “rising wedge pattern” indicating that there could be further downside; immediate support is seen at 8,510 and 8,480.

Next Trigger?

With the passage of the GST Bill in Parliament and Reserve Bank of India's policy meeting out of the way, investors will shift focus to the macro economic data due later this week.

Market participants will watch out for the consumer price inflation for July and factory output for June on Friday. The remainder of the earnings season will continue to provide an overall direction to the markets.

For the Nifty to move higher from here, the Bank Nifty needs to stage a strong comeback, Mendonca said.

“In an inter-index analysis of the two indices reveal that while the Nifty managed to hit higher highs, the Bank Nifty was unable to do so, indicating a divergence in the indices. So, for markets to go any higher, Bank Nifty has to stage a strong comeback,” he added.