Global indices fall in unison

Commodity market meltdown triggers the slide.

On Monday, market across the world saw a sharp fall on the back of selloff witnessed in commodities. Metal prices fell and this was reflected in the stock markets, with the BSE Sensex down by 3.77 per cent to 11,822.2.

The Hang Seng fell by 2.41 per cent, the Jakarta Composite fell by 6.31 per cent, while the Seoul Composite fell by 2.16 per cent.

Market watchers attribute this to the fall in global metal prices and expectations of further hikes in US interest rates.

Though there is nothing is fundamentally wrong with the Indian market, Monday's global selloff can't be ignored given the changing scenario in world markets, experts said.

Although the latest Fed rate hike of 0.25 per cent, which takes the Fed rate to five per cent, was expected by marketmen, the hawkish tone about continuing the hike further, was unexpected.

Some market participants expect that flows into emerging markets could slowdown as the interest rates in the US inch up further. The Fed rate has seen 16 consecutive quarter-point hikes since June 2004.

"Already most emerging markets, including India, have run up significantly which makes them ripe for a correction," said Pankaj Razdan, managing director, Prudential ICICI Asset Management, adding that the medium term outlook for Indian market remain positive.

Even as fears of a slowdown in fund flows persist, market participants said Monday's market fall was not only driven by the Fed rate hike.

Mihir Vora, senior vice president & head-equities at ABN Amro Asset Management said, "The fall in the markets worldwide has been primarily driven by the profit booking and the sharp fall in commodity prices globally. Apart from that ,there have been concerns of a weakening dollar as compared to the euro or the yen. While, other Asian currencies have been holding on, the rupee has weakened, even as there is nothing fundamentally wrong with India," he said.

Jayesh Shroff, fund manager at SBI Mutual Fund, with a slightly different view, feels that there has been some withdrawal from the emerging markets on the back of the sharp fall in LME prices.

The stock prices have followed the fall in the commodities. The latest correction has the potential to destabilise the short-term trend in the markets. Moreover, the global commodity sell-off suggests a subdued market for some time, according to Shroff.

Other factors that led to the Indian markets close sharply lower, include weak Asian and European markets, negative flows from FIIs and US markets closing lower on Friday.