Stocks slip to 20-month low on oil drop

Indices came off over 20% intra-day from their peaks; investors scurry to bonds, dollar

The Indian markets fell sharply on Wednesday, along with global peers, as a continued fall in oil prices raised concerns over the global economy. Indian stocks retreated to a fresh 20-month low. Nervous investors pulled out of riskier assets and moved to the safety of developed markets' bonds and the dollar.

The benchmark Sensex lost 418 points, or 1.7 per cent, to end at 24,062, lowest close since May 15, 2014. The 50-share Nifty fell 126 points, or 1.7 per cent, to 7,309, lowest close since May 30, 2014. Both are at fresh 20-month lows. The broader markets fell sharply, with the mid- and small-cap indices underperforming the benchmarks.

Most Asian and European markets fell two per cent, as oil prices fell below $28 a barrel, hurting investor sentiment.

Foreign institutional investors (FIIs) sold shares worth Rs 1,325 crore on Wednesday, while domestic investors were net buyers of shares worth of Rs 1,383 crore.

The sharp sell-off saw the rupee dropping below 68 against the dollar for the first time since September 2013.

In intra-day trade, the benchmark Sensex fell as much as 640 points to below 24,000-levels for the first time since Narendra Modi-led National Democratic Alliance came to power at the Centre. Indices came off over 20 per cent intra-day from their peaks. On a closing basis, the Sensex and the Nifty were down 20 per cent from their all-time highs touched last year.

"The correction is part of what is happening globally. India being over-owned by investors gets hit whenever there is a global sell-off like on Wednesday," said Gautam Chhaochharia, head of India research at UBS Securities.

Although experts believe the market correction might be overdone, they don't rule out further declines, given the global situation.

"We never thought the market will go down to this level. But it is difficult to say where it will stop," said Rakesh Arora, managing director and head of research, Macquarie Capital Securities.

Japan was the latest market to enter the bear market on Wednesday. Meanwhile, the yields on the US Treasuries dropped below two per cent as investors moved to safety amid turmoil in equities and commodity prices.

The flight of capital from emerging markets will continue to pressure their equities and currencies in the near term, say experts.

Foreign investors have pulled out nearly Rs 10,000 crore from Indian stocks in less than three weeks, during which the benchmark indices have fallen eight per cent. The drop in the markets this year has been triggered by concerns over China's economy, which has been an engine of global growth. Earlier this week, the International Monetary Fund cut its world growth forecast, citing dull prospects for commodity-producing countries and risks attached to the US central bank increasing rates.

Experts say a downturn in the economy and prolonged weak corporate earnings have made domestic markets more vulnerable.

"We had turned cautious on India in the past six months due to heightened expectations versus reality. However, the market has corrected a lot more than that. In absolute terms, the Indian market has become cheaper but hasn't declined to historically low levels. Earnings disappointment continues to be a big risk in the near term," said Chhaochharia.