The S&P BSE Sensex closed 118 points lower at 39,714.2, while the broader index Nifty fell 23 points to close at 11,922.8 after a day of volatile trading following the euphoria caused by ministerial allocations in the new government and in anticipation of new GDP numbers.

In early trade, the BSE jumped over 290 points (+0.72%) to reach 40,122.34 points, while the National Stock Exchange’s Nifty50 jumped more than 93 points over the previous day’s close to touch 12,039.25.

At the day’s high, the S&P BSE Sensex and Nifty50 were respectively short by less than 3 and 2 points compared to the lifetime high touched on May 23. On that day, the 2019 general election results were announced and the Narendra Modi-led National Democratic Alliance (NDA) came back to power with a thumping majority.

Analysts cheered the roping in of Nirmala Sitharaman as the new finance minister in the newly formed NDA government. Amar Ambani, president & research head, YES Securities, says that besides having relevant qualifications such as an MA in Economics, Sitharaman has played varied roles in corporate life, including work related to the field of economics. “She has a strong personality and seems like a task-master with an eye for detail; qualities that are much needed to bring sweeping change,” says Ambani.

“The ambiguity of portfolio allocation is now removed, so this is good for the market in a sense,” says Jagannadham Thunuguntla, senior vice president and head of research (wealth) at Mumbai-based Centrum Broking. “Emergence of clarity is what was important, and now narrative in markets will be about the economic policies that will be adopted to revive and stimulate the slowing economy,” he said.

The euphoria around the political outcomes faded by noon when the S&P BSE Sensex tanked from the day’s high by 748 points to touch the day’s low of 39,374.24. Similarly, the Nifty50 fell over 209 points from the day’s high to touch 11,829.45.

It would be fair to call the markets turning saner to the ground realities, as the domestic economy is facing headwinds. Economic slowdown is one such key issue for Modi 2.0. According to ratings agency India Ratings & Research, after witnessing a quarterly slowdown between the first quarters of FY17 and FY18, India has witnessed another quarterly gross domestic product (GDP) growth slowdown fairly quickly.

India Ratings & Research expects 4QFY19 GDP growth to decelerate to 6.3% from 6.6% in 3QFY19. “There would be another four-quarter GDP slowdown, starting from 4QFY18,” the agency noted in a report. The report noted of the rating agency expecting FY19 GDP growth to be 6.9% as against the FY19 Advance Estimate of 7.0%. It has to be noted that India’s GDP grew by 7.2% in FY18.

According to the latest data release on Friday, India's GDP grew by 5.8% in the fourth quarter of FY 2019 compared to 8.1% in the same period last year. For the full fiscal ended March 2019, GDP grew by 6.8% against 7.2% in FY 2018.

What also added fuel to the fire were global factors, primarily the escalating trade war between the U.S. and China. In addition to China, U.S. President Donald Trump tweeted that America would impose a 5% tariff on all Mexican imports effective June 10. And the tariff would remain in place until illegal migrants to the U.S., coming through Mexico stop. This hit global markets.

According to Sanjeev Zarbade, vice president of Private Client Group (PCG) Research at Kotak Securities, global markets are seen closing in the red for the week and for the month as well. “Fears of an escalating trade war kept markets nervous for the month,” says Zarbade. “Even economic data has been signalling a weakness in global economic activity,” he adds.

Of the 55 varied indices on the BSE, 38 closed in red while 17 closed in the green on Friday. The S&P BSE Bankex witnessed a jump of over 453 points on Friday to touch a new high of 35,717.94 in early trade. It fell over 1,248 points to the day’s low of 34,469.06 and finally closed the day over 186 points lower at 35,264.03. The Nifty Bank index also exhibited a similar pattern, as it jumped over 246 points from the previous day’s close to touch a new high of 31,783.6. But the index fell 1,160 points to the day’s low of 30,623.6 at noon, to close at 31,375.4.

Jayant Manglik, president, retail distribution at Religare Broking, maintains a cautious stance on the markets at higher levels in the near term. “Domestic macro data (Q4 GDP and infrastructure output scheduled to be released on Friday) and RBI’s monetary policy (on June 6) will dictate the market trend in the next couple of weeks,” he says. “Further, global developments, especially with respect to US-China trade talks and movement of crude oil prices will also be constantly monitored,” Manglik adds.\

In June, the markets will look at the new ministers’ actions at home and progress of monsoon, while keeping global developments on their radar.

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