Stocks collapsed to 10-month low and the rupee hit a fresh two-year low on Monday as India felt the tremors of the free-fall in global markets sparked by concerns of a deepening #China slowdown.
The Sensex crashed 1624.51 points or 5.94 percent to end the day at 25741.56. The #Nifty shed 490.95 points or 5.92 percent to close at 7809 after hitting an intraday low of 7769.40. With Monday’s slide, the Sensex has fallen around 2137 points over the last week and the Nifty by 668 points.
Even more bruising was the decline in second line shares, with the CNX Midcap diving 9.6 percent and the S&P Smallcap index falling 8.8 percent. Global markets took sharp knock as investors fretted over the problems in the Chinese economy and the implications for the global economy. The sell-off in China intensified today, and set the tone for the rout in global markets starting from Asia.
The #Shanghai Composite index dropped 8.5 percent even as authorities allowed pension funds managed by local governments to invest in the stock #market for the first time. Hang Seng, Nikkei, Straits Times and Taiwan Weighted were down 4-5 percent. European markets, too, wilted under the heat of the turmoil in Asia. France’s CAC, Germany’s DAX and Britain’s FTSE fell nearly 3 percent.
Even the sharp fall in Dow futures (down 400 points) indicated further slide in major US markets today, in addition to 3 percent drop seen on Friday. In commodities, #Brent crude was down 3.81 percent to USD 43.73 a barrel and NYMEX crude declined 3.88 percent to USD 38.88 a barrel (at 16 hours IST). Back home, the rupee ended at two-year closing low of 66.65 a dollar, down 82 paise compared to 65.83 a dollar on Friday.
Indian authorities tried to highlight India’s strong points, but were overwhelmed by pessimistic mood among global investors. Stocks across sectors were pounded, with realty and oil & gas bearing the brunt. Sectoral indices for auto, banks, capital goods, metal, and pharma tumbled 7-8 percent. IT and FMCG fared slightly better, but that was not saying much as the respective indices for the sectors were down 4-5 percent.
Dealers said the downturn in second line shares was aggravated by the unwinding of positions created by traders using borrowed money. “India is in a better position compared to other markets,” RBI Governor Rajan said at a public function earlier in the day, adding, “The deflationary forces around the world and the commodity slump have given us a golden opportunity to bring inflation under control finally, and that too without having to resort to demand compression [using high interest rates].”
Finance Minister Arun Jaitley too tried to assuage investors, saying India was reacting to global developments, and that the macro parameters like inflation, fiscal deficit and tax collection were pointing to a revival in the economy. But these statements cut failed to cut ice with investors, many of them looking to offset losses in other markets by selling profitable positions in India.
“This is like a falling knife and a panic in the market so it can go to lower levels,” IIFL founder Nirmal Jain told CNBC-TV18, adding, “anything is possible in a market like this.” Till yesterday, India was the among the best performing emerging markets in 2015 so far, having fallen only 4 percent compared to most other markets which had fallen between 15-70 percent.
But that also means that global investors would have been tempted to cash out of some of their positions in India to reduce losses suffered elsewhere. “In relative terms we have India as not just an overweight but in fact our largest overweight recommendation in the Asia pack ex-Japan region,” Michael Kurtz of Nomura told CNBC-TV18, adding that domestic growth cycle and reforms would be the key drivers.
“As the world continues to worry about Chinese growth and the impact that slower Chinese growth has on commodities, it actually tends to play into India outperformance and keeps us more positive on that market,” he said. UBS’s Hartmut Issel too is bullish on India as he feels the RBI has enough elbow room to cut rates, and also as the corporate earnings cycle is showing signs of picking up.
“Even though you may not see tremendous progress on the reform side, but I will take improved earnings growth anytime,” he told CNBC-TV18 . “And I think the second quarter already gave us a bit of a precursor, it was not quite as bad anymore,” he said. However, the volatility in currency markets across Asia still poses a major threat, feel some market experts.
“We have downgraded the rupee in recognition of the Chinese devaluation and despite us still being pretty comfortable about India’s overall macro fundamentals and the benefits they will have from lower commodity price, we just cannot help but recognise that the rupee will not be totally immune,” Khoon Goh of ANZ Research told CNBC-TV18 .