 "Brexit brings out the bears")
The European markets went in freefall mode, with benchmark indices in the UK, France, Germany, Spain and Italy plunging between five and 10 per cent. Major stocks in the European markets posted their biggest-ever single-day declines and the indices in the US markets plunged in initial trade. The pound fell as much as 10 per cent, against the dollar, to levels last seen in 1985. The euro dropped around four per cent against the dollar.
Market pundits termed the so-called Brexit event as Europe's 'Lehman Brothers moment'. (Click here for chart and table)
Also Read
In comparison, the carnage in the domestic market was relatively less intense, with the benchmark BSE Sensex ending at 26,397.7, down 604.5, or 2.24 per cent, most since February 11. The Nifty 50 index declined 181.8 points, or 2.2 per cent, to settle at 8,088.6, with only six of its 51 components ending with gains. Nearly Rs 1.8 lakh crore of investor wealth got erased in the domestic markets, while nearly $2 trillion was wiped off global equities on Friday. The rupee ended at 67.98 against the greenback, its lowest level since February 29. In intra-day trade, the rupee fell to 68.21, compared to Thursday's close of 67.25.
The Sensex had plummeted as much as 1,091 points to 25,911.33, while the Nifty dropped to a low of 7,927 in intra-day trade, prompting the government to soothe investors' nerves. Companies with high exposure to the European markets led Friday's market declines.
Tata Motors, which owns Jaguar Land Rover, fell eight per cent, most among Sensex components. Tata Steel fell 6.4 per cent and was the second-worst performer. The steelmaker has significant exposure to Europe, with plants in the UK and Netherlands. Banking majors ICICI Bank, Axis and State Bank of India fell around three per cent each.
The overall market breadth too was weak with over two shares declining for every one advancing.
Overseas investors pulled out Rs 630 crore from the cash markets, while domestic buyers were net buyers of around Rs 115 crore.
Finance Minister Arun Jaitley downplayed concerns and said on his Facebook page, "As investors look around the world for safe havens in these turbulent times, India stands out both in terms of stability and growth. Jaitley said the government and the Reserve Bank of India (RBI) as well as other regulators were working closely together, to deal with any short term volatility.
RBI Governor Raghuram Rajan said the central bank had adequate liquidity to smooth volatility and the markets should see "calm re-emerging" after a few days of Brexit.
Analysts believe the market will continue to remain turbulent as they see the next few months as an uncertain time for the Europe both politically and economically. "We think the crystallisation of a major tail risk for markets is likely to herald a period of volatility as investors digest the full implications of Brexit," said a note by Bank of America Merrill Lynch.
Abhay Laijawala, MD and head of research, Deutsche Equities India, added, "A heightened level of financial market volatility and uncertainty over the outlook for currencies and global macro will undermine equity markets, including India."
Laijawala added that India was "strongly differentiated on macroeconomic health" with most of its emerging market peers but may "not be able to stay completely insulated" in the event of a broad-based sell-off in the near term.
However, some others have a different take. Frederic Neumann, co-head of Asian economics research, HSBC, wrote, "Asia should come through this episode with only a few scratches. The trade exposure to the UK is minimal for most Asian economies." According to HSBC, India's exports to the UK accounted for 0.4 per cent of GDP in 2015, while exports to EU are at 2.1 per cent of GDP.
The turmoil saw investors piling on to safe-haven bets bolstering prices of gold, developed world bonds and Japanese yen. Oil prices fell nearly five per cent. Asian markets led by Japan also posted sharp losses between two and seven per cent. Asian currencies, with the exception of Japanese yen, fell sharply against the dollar.
Bank of England too announced £250 billion ($340 billion) package to infuse stability in the market, which helped the UK market recoup some losses.
WHO SAID WHAT...
- As investors look around the world for safe havens in these turbulent times, India stands out, both in terms of stability and growth
Arun Jaitley, Finance minister
- The volatility will hit us. But as markets and investors wake up, they will judge where it makes sense to invest. We should see a calm re-emerging
Raghuram Rajan, Governor, RBI
- As trade strategies are reworked, there could be potential advantages in terms of better market access for India to EU and UK
A M Naik, Chairman, L&T