The US Federal Reserve’s announcement on quantitative easing on Wednesday created mayhem at global markets including India. Sentiment was so bearish on Thursday that 28 out of 30 Sensex scrips closed down and investors lost wealth worth Rs 1.57 lakh crore in a single day!
Tracking US markets, which closed lower on Wednesday, Sensex opened with a sharp downside gap and continued to decline further amid rupee falling to hit record low of 59.93 against the dollar. The BSE benchmark ended down 526.41 points at over 2-month low of 18,719.29 and 526-point drop is the biggest since 704-point crash in September 2011. Similarly, Nifty dipped below 5,700 level by losing 166.35, to close at 5,655.90. Also, SX40, the flagship index of MCX-SX, closed 308.22 points down at 11,118.85.
“Fears over earlier-than-expected withdrawal of monetary stimulus by Fed led to a sharp fall in markets across the works and India was no exception. Benchmark indices had one of the largest falls in terms of absolute points. Concerns over withdrawal of funds by FIIs and the consequent impact on the rupee as well as financing of CAD, soured sentiments,” said Dipen Shah, Head of Private Client Group Research, Kotak Securities while commenting on the performance of the stock markets on Thursday.
Sustained outflows, weakness in European markets and tepid Chinese manufacturing activity, as per market analysts, also affected markets.
Globally, benchmark indices in China, Hong Kong, Japan, Singapore, Taiwan and South Korea fell by 1.35-2.88 per cent. Euorpean markets were also trading lower in early trade as indices in France, Germany and the UK fell by 2 per cent. The ultra-low borrowing rates the Fed has engineered havebeen credited with helping fuel a housing comeback, support economic growth and drive global stocks to record highs.
A withdrawal of stimulus may hit FII inflows in India, experts said, adding the short-term trend of domestic markets continues to remain negative. “Selling pressure across the board meant Nifty closed the day deep in the red. Even though the closing occurred right around an important support, short term trend continues to remain down as long as it trades below the resistance zone of 5880-5900,” said Shubham Agarwal, Associate VP & Sr Technical Equities Analyst, Motilal Oswal Securities.
While there was speculation that domestic institutional investors including lIC bought shares that saw deep losses, the persistent weakness in rupee hit sentiment as investors stayed away from bluechips on fears of forex-related losses. The sharp depreciation in rupee has fuelled speculation that the RBI may not cut interest rates in July. Consequently, rate-sensitive shares bore the maximum brunt.
Among the sectoral indices, S&P BSE-Realty dropped by 5.18 per cent, followed by S&P BSE-Metal (4.63 pc), S&P BSE-Bankex (3.98 pc), S&P BSE-Power (3.29 pc), S&P BSE-Oil&Gas (3.06 pc) and S&P BSE-CG (2.76 pc). S&P BSE-PSU (2.76 pc) and S&P BSE-CD (2.46 pc) also fell as constituents tripped under heavy selling.
The market breadth was negative as 1,647 stocks ended down while just 654 stocks ended up. The total market turnover rose to Rs 1,770.87 crore from Rs 1,657.56 crore on Wednesday.