With concerns over global economy and mounting huge bad loans, Dalal Street experienced a bloody carnage on Thursday. The benchmark Sensex BSE crashed by 807 points to drop to 22,951.83, almost sinking to its lowest level in 21 months as the eighth biggest single-day fall and wiped off over Rs 3 lakh crore from the wealth of panic-stricken investors. NSE’s Nifty also saw its biggest fall in six months to end at 21-month low of 6,976.35. Following such sharp fall in equities amid foreign capital outflows, the Rs too plummeted by 45 paise to end at an over 29-month low of Rs 68.30 a dollar on fresh demand for the US currency from banks and importers.
Reasoning mixed factors for the fall of the market, the bank stocks were the most hit, while investors continued to desert state-run lenders with stocks plunging by up to 11 per cent amid concerns over mounting bad loans and disappointing earnings reported by respective banks.
However, the Government is in face-saving mode, saying the fall in market benchmarks this year has been just about 10 per cent as against much higher declines in other markets and the Sensex has come off more than 23 per cent from its all-time peak of over 30,000, scaled nearly a year ago on March 4, 2015. Trying to calm jittery investors, Economic Affairs Secretary Shaktikanta Das claimed that the decline in stock markets in India is not as bad as in some other countries and the Government is prepared to deal with challenges emanating from global developments.
While RBI Governor put it differently on falling bank stocks, saying that a deep surgery is needed to clean up balance sheets of banks and non-performing asset (NPA) recognition is anesthetic to do surgery.
However, the experts believe that the global headwinds remain a major concern but the domestic woes, including ballooning NPAs being reported by the banks and weak quarterly earnings in various other sectors, have added to the market weakness.
Besides, they are of view that crude oil prices have been in a downward spiral since July of 2014. The benchmark Brent crude prices in london have crashed from $106 in July, 2014 to $30 on Thursday, a drop of over 70 per cent. “What we are experiencing in the global market is larger amount of pressure coming up from the redemption and this redemption pressure is due to the collateral damage aided by fall in crude and commodity prices,” said Deven Choksey, MD, KR Choksey Investment Managers, adding that if this pressure subsides then the market would go down in hurry or probably go down badly.
Country’s largest lender SBI too reported a plunge of over 67 per cent in its third-quarter net profits while a number of other banks have also reported weak results on worsening bad loan scenario. Other Asian markets too ended weak following US Federal Reserve Janet Yellen’s testimony which suggested that the bank is likely to continue on the gradual rate hike path. Moreover, European shares were also lower with indices in France, Germany and the UK staring at losses of up to 4 per cent as global sell-off intensified.