World markets were on a crash course today, while the euro hovered near four-year lows against the dollar after Germany banned speculators from short-selling government bonds, fanning concern the global economic recovery may be derailed.
Indian markets felt the heat. In its second biggest fall so far this year, the benchmark equity index, Sensex, of the Bombay Stock Exchange crashed 467 points, or 2.77 per cent. The index was near its three-month low. Six of the 30 stocks on the index plunged by more than 5 per cent, pushing the measure below its 200-day moving average for the first time in more than a year. Some investors may read the breach as a signal of further declines
The rupee depreciated to its weakest per dollar since February 2009 on speculation overseas investors would pare holdings of emerging market stocks. Forwards contracts in the rupee show traders increased bets for the currency to weaken in three months.
Crude oil slumped to a seven-month low in New York as the dollar climbed against the euro, curbing the investment appeal of commodities. Copper for three month delivery fell 2.8 per cent on the London Metal Exchange, while gold fell to $1,200 an ounce on profit booking.
Meanwhile, the Sensex closed at 16,408 and the broader index S&P CNX Nifty of the National Stock Exchange (NSE) fell below its 200-day moving average. The index was down 146.5 points, or 2.89 per cent, to close at 4,919.
In the markets, the ban also brought back memories of an unsuccessful attempt by the US and British authorities to prop up stock markets at the end of 2008, in the wake of the collapse of Lehman Brothers and the ensuing crisis that gripped the banking sector.
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In Asia, shares dropped in the wake of the German decision. Japan’s benchmark Nikkei 225 stock average dropped 55.80 points, or 0.5 per cent, to 10,186.84. South Korea’s Kospi index lost 0.8 per cent to 1,630.08 and Australia’s S&P/ASX 200 index was off 1.9 per cent at 4,387.10. Benchmarks in Singapore and Indonesia fell more than 1 per cent and Hong Kong's Hang Seng index lost 1.8 per cent to 19,583.22.
In Europe, the FTSE 100 index of leading British shares was down 149.26 points, or 2.81 per cent, 5158.08 at 11 pm India time. Germany's DAX plunged 167.26 points, or 2.72 per cent, to 5988.67. The CAC-40 in France lost 105.65 points, or 2.92 per cent, at 3511.67.
Wall Street also witnessed a fresh round of selling. The Dow Jones Industrial Average was down 59.17 points, or 0.56 per cent, at 1,0451.78 at 11 pm India time. Nasdaq was trading lower by 13.17 points, or 0.57 per cent, at 2,304.09 and S&P 500 was down 4 points, or 0.35 per cent at 1,116.83.
Experts were divided over the outlook for Indian markets. “The Indian markets would see fluctuation and volatility,” said Rohit Chatterji, managing director and head of investment banking J P Morgan. “But, directionally, I don’t see investors withdrawing from India. I think from the Asian perspective, the implications are going to be more muted to the European crises because the local markets here are still flush with liquidity across most countries,” he added.
However, Edelweiss Chairman Rashesh Shah said the key market drivers — sentiment and liquidity — had turned negative and domestic institutions too, had slowed their investment. “It will take a couple of months for liquidity to return and a few weeks for the sentiment to improve,” he said. Shah believes, though, that even a 15-20 per cent correction for markets is no cause to worry.
Russell Napier, Global Macro Strategist, at CLSA Asia-Pacific Markets, said he thinks the Reserve Bank of India is prepared to let the exchange rate appreciate considerably in an attempt to dampen inflation. This, as part of a contra cyclical monetary policy, should cap gains in Indian equities this year."
Jyotivardhan Jaipuria, Head-Research, Bank of America Merrill Lynch, said India on a relative basis is not as affected, but in an absolute sense, it cannot be said that there will be no impact since the country is co-related with the rest of the world." "The crisis will bring back fears of the economy slowing down, will bring risk back into the equation and the credit market will start getting some fears. In terms of FII flows, though there may be some impact in the short term, with more and more FIIs looking to invest in emerging markets, in the long-term the theme will get reinforced," said Jaipuria.
Among Sensex stocks which took a major hit today were Tata Motors, which was down 7.39 per cent to close at Rs 714.50. Sterlite Industries was down 7.33 per cent at Rs 637.50 and ICICI Bank 7.24 per cent at Rs 825.
The market breadth was extremely poor as seven out of every 10 stocks fell today. On BSE, 2,198 or 75.3 per cent stocks declined against the advances of 645 or 22.1 per cent. As per provisional figures, foreign funds sold stocks worth Rs 1,383 crore while the domestic institutions were net buyers to the tune of Rs 56 crore only in the cash segment.