 "China tremors rock markets once again")
Another plunge in Chinese stock markets, coupled with weakness in the renminbi, exacerbated the volatile start to 2016, during which $2.5 trillion has been wiped off global equities.
Indian stocks declined two per cent, with benchmark indices briefly slipping below levels last seen in June 2014. The Sensex ended 2.18 per cent, or 554.5 points, lower at 24,851.83, while the 50-share Nifty ended 2.23 per cent, or 172.7 points, down at 7,568.3. Both ended at their lowest levels in four months. Other Asian and European markets were rattled more than India and crude oil prices fell to a 12-year low.
The global risk-off trade was caused by a second trading halt on Chinese bourses only three days after indices there tumbled seven per cent, triggering circuit breakers. China's securities regulator suspended a new stock circuit-breaker after the sell-off forced local exchanges to shut, signalling that the country's leadership may reconsider or change the system.
A 0.5 per cent depreciation in the yuan by the Chinese central bank, the biggest since a surprise devaluation in August 2015, raised fear of a global currency war. The move saw global funds pull out money from riskier assets like emerging markets.
The rupee ended 0.14 per cent down at 66.93 a dollar after China let the yuan depreciate against the US dollar to protect its falling economy.
Foreign institutional investors (FIIs) pulled out over Rs 1,000 crore from the domestic market, provisional data showed. Buying by domestic funds remained relatively subdued at Rs 190 crore.
Rakesh Arora, managing director and head of research (India), Macquarie Capital, said a sharp depreciation in the yuan was a big risk for the markets. If FIIs continued to pull out money, it would be difficult for domestic investors to offset the outflows, he said.
Renowned investor George Soros said the global financial markets were facing a crisis like 2008. Pundits said the markets might continue to be volatile until there was more clarity on the yuan depreciation.
"The fall in the China market will cause volatility in the Indian market. However, the quantum of fall in the Indian market will not be as much as in China," said Harsha Upadhyaya, chief Investment officer, Kotak Mahindra Mutual Fund.
The India VIX index surged nearly 15 per cent on Thursday to 18.96. The spike indicates traders expect further volatility in coming sessions.
Thursday's sell-off was so severe that all Sensex and Nifty components ended with losses. Also, over Rs 2 lakh crore worth of investor wealth was wiped off for a second time this week. Seven Nifty stocks, including L&T, SBI and ICICI Bank ended at one-year lows. The biggest losers among Sensex stocks included Bhel and Tata Steel, which fell nearly seven per cent each. Other losers included Tata Motors (down 6.2 per cent), Axis Bank (5 per cent) and Maruti (4.8 per cent).
The broader markets underperformed the benchmarks with the BSE midcap and smallcap indices declining nearly three per cent.
The Sensex is down nearly five per cent in the five sessions of 2016. After rallying 30 per cent in 2014, the benchmark indices fell five per cent last year due to worries over a China-led global slowdown and concerns surrounding an interest rate hike in the US.
The rupee ended 0.14 per cent down at 66.93 to a dollar after China let the yuan depreciate against the dollar. China adjusted the central parity rate of the yuan by 0.5 per cent to 6.5646 against the dollar, allowing the currency to rise or fall by two per cent from the mid-point on each trading day.
