Crisis, Made in China, sends Sensex into 1600-point fall: Govt sees ‘opportunity’

Indicating more reforms on the anvil, Finance Minister Arun Jaitley said the Prime Minister wants more steps taken to strengthen the economy, including higher government spending.

“PM wants to take steps to convert the worldwide crisis into an opportunity for India,” Jaitley told a press conference in the evening.

Monday’s fall came on the back of a sharp decline in the Chinese and Japanese markets that fell 8.5 per cent and 4.6 per cent respectively as concerns over global growth mounted. While major European markets were down by around 6 per cent, the Dow Jones Industrial in the United States too opened on a weak note Monday and was down over 4 per cent in the morning trading hours. Last Friday, it closed with a loss of 3.1 per cent, setting the tone for Monday’s fall.

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The broader Nifty at NSE too fell 5.9 per cent to close at 7,809 Monday.

The fall was led by a sharp sell-off by foreign institutional investors who sold Indian equities worth a net of Rs 5,275 crore Monday. On Friday, they had sold equities worth a net of Rs 2,299 crore.

The sell-off also saw the rupee decline to a new two-year low of 66.65. On the global front, the brent crude fell to a new six-and-a half year low of $43.2 per barrel, offering some respite to India which is a net commodity importer.

Jaitley and RBI Governor Raghuram Rajan looked to provide some comfort to investors during trading hours, maintaining that the Indian economy was relatively better positioned and that the government and RBI were keeping a close watch on the global situation.

Describing the market crash as “transient and temporary”, Jaitley blamed the fall on external factors: “There has been for the last few days a great amount of turbulence in the global markets. Obviously, that turbulence has been felt in the Indian markets as well. The factors responsible for this are entirely external. There is not a single domestic factor in India which has either contributed or added to it. I have not the least doubt that this turbulence is transient and temporary in nature and markets will settle down.”

He said the government’s response at this stage was very clear, “We have to strengthen our own economy and we have to continue to be the best performing economy globally.”

With the rupee falling around 4.5 per cent in the last fortnight, Rajan assured the markets that the RBI will not hesitate in using its forex reserves — it now amounts to over $354 billion — to contain volatility in the rupee.

Experts also spoke on similar lines and suggested investors stay put with their investments. “The near-term pain is likely to continue on the back of global developments. While investors should not press the button to sell, they must also avoid bottom fishing,” Pankaj Pandey, head of research at ICICIdirect.com, said.