Weak global cues and a downgrade of Indian equity markets by Goldman Sachs for the first time in nearly four-and-a-half years affected investor sentiment, with both the benchmark indices shedding more than 1% each on Monday.

The 30-share Sensex lost nearly 550 points in intraday to touch a low of 37,548.93 before closing at 37,585.51, down 505.13 points, or 1.33%. As many as 25 stocks in the Sensex pack ended in the red with heavyweights such as HDFC, Reliance Industries, HDFC Bank and Tata Motors losing more than 2% each. Interestingly, the overall market breadth was balanced with declines at 1,441 only marginally outnumbering gainers at 1,282.

The broader Nifty settled the day at 11,377.75, down 137.45 points or 1.19%. The benchmarks of Hong Kong, China and Indonesia lost over 1% each amid reports that the U.S. is preparing to impose tariffs on goods worth $200 billion from China.

After two days of gain, the rupee weakened on Monday as it crossed the 72 a dollar mark though the Centre announced steps on Friday aimed at improving the current account deficit. The rupee ended at 72.51 falling 0.9% from its previous close.

Lofty valuations

For the first time since March 2014, global financial major Goldman Sachs changed its view on the Indian equity market — lowering the grade from overweight to market weight — citing expensive valuations, the recent rally, likely increase in fiscal deficit ahead of the elections next year and the possibility of a less stable government.

“Indian equities are the most expensive in Asia, and trading at a record 58% premia to region. At these levels, equities have historically posted negative returns over 3-6 months,” it said.

“We expect markets to consolidate heading into the elections and Nifty to reach its 12-month target of 12,000 as political uncertainty wanes and earnings accrue.”

Goldman Sachs economists forecast a current account deficit of 2.6% of GDP this year against 1.9% in FY18. While domestic inflows have slowed for four consecutive months, fund flows could slow down further as the yield gap between equities and bonds has fallen to 10-year lows.

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