Indian markets' worst week in four years

Benchmark indices plunge 4.7% in the first full week of 2016

Indian markets saw their worst weekly pounding in more than four years due to turmoil in the Chinese market.

The benchmark Sensex and Nifty dropped 4.7 per cent in the first full week of 2016, their worst weekly performance since November 2011. On Friday, however, the Indian market, similar to global counterparts, saw some calm after the China market rebounded two per cent buoyed by buying of shares by government authorities and suspension of circuit filters.

The benchmark Sensex on Friday gained 0.33 per cent, or 82.5 points, to end at 24,934.33, the 50-share Nifty gained 33 points, or 0.44 per cent, to close at 7,601.35.

For the week, however, the blue chip indices fell as much as five per cent as a global flight of capital saw foreign investors pull out nearly Rs 2,000 crore. India and other world markets were rattled due to a halt in trading twice during the week in China after its benchmark indices hit circuit breakers of seven per cent.

"Clearly, many investors are worried right now. As we see it, there is no question that China should continue to have strong growth this year, but one might say China is facing a bit of a conundrum. On one hand, the government wants stability, but on the other, it also is striving toward more openness. That means we could see more volatility in China's market this year as these conflicting forces play out," Mark Mobius executive chairman at Franklin Templeton Investments, and an expert on emerging markets, wrote in a blog on Friday.

Concern over the health of the Chinese economy, which remains the global engine of growth, unnerved investors and wiped out nearly $4 trillion from global equity markets. The events of the week had resemblance to August 2015, when a surprise devaluation in the renminbi by China's central bank had sent shock across global financial markets. The Indian market had come off as much as 10 per cent following the China move in 2015.

"While the deflationary trend has long been evident in the developed world, given the subpar post-2008 recovery, the intensifying market concerns about China over the past six months reflect investors focusing on the reality that the one area of decent growth since 2009 is also now slowing," said Christopher Wood, managing director and equity strategist at CLSA, in the Greed & Fear newsletter. Wood highlighted China and the other emerging markets have accounted for 75 per cent of the increase in world nominal GDP in US dollar terms between 2009 and 2014.

Domestic brokers said the Indian markets would continue to remain vulnerable to the volatility in China in the coming weeks. Beside global cues, traders will also keep an eye on the December quarter result announcements from next week.

On Friday, the major gainers on Sensex included Tata Motors, which rose three per cent, Tata Steel, which gained 1.44 per cent, and Reliance Industries, which added 1.2 per cent. Cipla, which fell 2.6 per cent, and Larsen & Toubro (L&T), which lost 2.2 per cent, were among the major losers. CLSA replaced Reliance with L&T in its Asia ex-Japan long-only portfolio.