Bleak outlook as worries over US, Europe deepen.
Stocks tumbled as fears grew about a possible recession in the world’s largest economy and stagnation in some of the most developed markets of the world. A downgrade for world economic growth by Morgan Stanley added to sell-offs, initially driven by weak economic data from the UK, Japan and China.
While the Indian benchmark Sensex fell to a 14-month low, US indices were headed to one of their worst falls in recent times. In its latest forecast, Morgan Stanley made stinging criticism of Washington and the euro zone governments for failing to act more decisively to contain their sovereign debt issues.
| MAJOR WORLD INDICES | ||
| Index | 18-Aug | % change# |
| AMERICA* | ||
| Nasdaq | 2,388.92 | -4.88 |
| Dow Jones | 10,970.30 | -3.86 |
| EUROPE* | ||
| DAX | 5,602.80 | -5.82 |
| CAC 40 | 3,076.04 | -5.48 |
| FTSE 100 | 5,092.23 | -4.49 |
| ASIA | ||
| Nifty | 4,944.15 | -2.22 |
| Sensex | 16,469.79 | -2.2 |
| Kospi | 1,860.58 | -1.7 |
| Taiwan Taiex | 7,614.97 | -1.64 |
| Shanghai SE | 2,559.47 | -1.61 |
| Hang Seng | 20,016.27 | -1.34 |
| Nikkei 225 | 8,943.76 | -1.25 |
| * 2330 Hrs IST # Over previous close Source: Bloomberg Compiled by BS Research Bureau | ||
The global financial major estimated expansion of 3.9 per cent, down from a previous forecast of 4.2 per cent, according to its recent report, which also said the US and Europe are “dangerously close to recession”.
The outlook for Indian markets remained bleak as analysts across markets appeared unanimous in voicing concerns ranging from slowing growth in the euro zone region, high inflationary pressures on most central banks and recession clouds looming over the US. Worries over European banks lacking sufficient capital intensified on Thursday, leading to a huge sell-off across the region.
Mirroring the fall in Asian and European markets, the 30-share Sensex lost 2.2 per cent or 371 points to close at 16,469 — its lowest close since May 2010 — with ICICI Bank, Infosys and SBI leading the losses.
The broader S&P CNX Nifty was down 2.2 per cent or 112 points to settle the day below the psychological 5,000-mark at 4,944.
The Sensex, incidentally, has lost more than 20 per cent from its all-time highs, which technically means the index is in bear territory. “There is a strong bear market undertone in the market and even if we see a bull rally, it will only be a temporary pullback,” said Vijay Bhambwani, CEO, Bsplindia.com. “Given the bearish undertone, we could see anything between 4,500 and 4,700 on the Nifty in the near term,” he added.
Rakesh Arora, managing director and head of research, India, Macquarie Capital Securities, said, “Historically, markets have bottomed at 11x-12x forward price to earnings, which means the Sensex bottom is around 14,500-15,000 points.” “The immediate outlook is the markets are likely to trend lower,” he added.
“Everyone is waiting for the global markets to stabilise,” said BSE member Ramesh Damani. “Markets are falling more for lack of buying interest and there is a whiff of panic. The only silver lining is a lot of liquidity is floating around due to low interest rates,” he said.
Meanwhile, the benchmark US indices could not have asked for a worse opening. At the time of going to press, both S&P500 and Nasdaq were down more than four per cent each. Moreover, Treasuries rallied, pushing 10-year yields to a record low.
Europe saw all the leading equity indices post significant losses. The FTSE 100 was down more than 200 points or 4.21 per cent. Both Germany's DAX and France's CAC 40 lost more than five per cent each. In Asia, Japan's Nikkei was down 1.25 per cent. Hong Kong's Hang Seng fell 1.34 per cent and China's Shanghai Composite was down 1.6 per cent.
The flight of investors from the equity market saw gold prices surge. Gold for December delivery rose $30.40, or 1.7 per cent, to $1,824.20 an ounce on the Comex in New York. The yellow metal is up 28 per cent this year. Interestingly, gold is in the 11th year of a bull market, the longest winning streak since at least 1920, in London. Meanwhile, crude oil for September delivery dropped $3.83, or 4.4 per cent, to $83.75 a barrel during morning trades on the New York Mercantile Exchange. The contract fell as low as $82.54. Oil has dropped 8.3 per cent this year.
Back in India, provisional numbers showed that foreign institutional investors (FIIs) sold stocks worth Rs 488 crore on Thursday. Insurance companies-led domestic funds made purchases of Rs 330 crore . The market breadth was negative, with just 23 per cent stocks on the BSE managing to close in the positive territory. Close to 74 per cent counters traded on the BSE declined. All sectoral indices closed lower.
