 "Redux 2015: Dalal Street spooked after Shanghai's 7% crash")
India and global equities fell over two per cent on Monday, after weak manufacturing data triggered a seven per cent slump in the Chinese markets. The sharp drop in Chinese stocks triggered newly-introduced circuit breakers, causing halt in trade for the rest of the day in the world's second-biggest stock market.
The widely-tracked Shanghai Composite Index and CSI 300 indices dropped seven per cent, which caused a halt in trading at 1:34pm (local time). The sharp declines came after data showed China's manufacturing sector shrank for a fifth straight month in December.
India's benchmark Sensex and Nifty indices fell the most in four months and the rupee weakened against the dollar as overseas investors pulled out nearly Rs 700 crore from the cash segment. European and other Asian markets also posted sharp falls in what was their first trading day of 2016. Instability in West Asia, as Saudi Arabia severed diplomatic ties with Iran, also weighed on sentiment.
The 30-share Sensex fell 537.55 points, or 2.05 per cent to 25,623.35, while the 50-share Nifty ended at 7,791.3, down 172 points, or 2.16 per cent, most since September 4, 2015. Only three components on both indices ended with gains. The rupee fell 0.72 per cent to 66.62 against the dollar, mirroring weaknesses in other Asian currencies.
"Developments in a big economy like China have repercussions for the entire world. Fears of currency wars will continue to keep investors cautious going ahead," said Motilal Oswal, chairman & MD, Motilal Oswal Financial Services.
Surprise devaluation in Chinese currency had triggered a sharp correction across global markets in August and September last year."China has been a concern for several months. However, markets were under check due to some strict curbs by the government. As some of those checks are about to expire, volatility has resurfaced. We will continue to see such episodes of volatility till the structural issues are resolved," said U R Bhat, managing director, Dalton Capital Advisors. Market experts projected further correction in Chinese equities as the ban on stock sales by large investors, imposed last year, is about to expire.
"A rout in Chinese market has triggered global sell-off. Markets will remain volatile in short term," said Nirmal Jain, chairman, IIFL Holdings. Among Sensex components, Tata Motors fell the most (6 per cent), followed by Bharti Airtel (4 per cent) and Adani Ports (3.7 per cent). Banking major State Bank of India declined 3 per cent and engineering behemoth Larsen & Toubro declined 2.6 per cent.
"Slowdown in China is exerting downward pressure on tradable goods globally. This is creating a substantial risk for India. Products manufactured in India are becoming uncompetitive globally. That's the real risk. It isn't the China stock market per se," said Saurabh Mukherjea, CEO, institutional equities, Ambit Capital.
The India VIX Index, a gauge for market volatility, surged 18 per cent on Monday as traders expected markets would continue to swing sharply. Market players expect equities to remain subdued as December quarter corporate earnings announcement are unlikely to provide much relief.
The Indian market had declined five per cent last year, after rising 30 per cent in 2014. Foreign inflows in 2015 stood at $3.3 billion, lowest in four years.
