Indian stock markets joined a global sell-off that sent the Sensex plunging by 807 points, or 3.40, per cent, to 22,951.83 — its lowest in the last two years. This came after US Federal Reserve Chairperson Janet Yellen kept options open for more rate hikes while bank stocks fell after posting disappointing earnings.
The Nifty index of the National Stock Exchange closed for the day at 6,976 pts, down by 3.32 per cent or 239 pts over Wednesday’s closing levels. The Sensex is already down by 7,000 points from the all-time peak of 30,024.74 on March 4, 2015 in less than a year.
Thursday’s carnage was triggered by Yellen who told the US Congress that she does not expect to reverse the rate hike programme that began in December but said she saw risks to the US economy. Indian stocks have been under pressure for some time now as a host of factors, ranging from capital outflows, global weakness, crude oil price fall, fall in exports and a weak rupee, have put pressure on investor sentiment.
Foreign investors who have already sold a net $1.9 billion (around Rs 13,000 crore) in shares so far this year are expected to pull out more funds if the US Fed hikes rate again.
The performance of the corporate sector has been muted so far this year. CRISIL Research expects corporate revenue (excluding banking and oil & gas companies) to grow at a measly 2 per cent in the three months ended December 2015, driven by low-base effect (growth in the corresponding quarter of last fiscal was just 5 per cent) amid crushed commodity prices, weak investment demand and flagging rural consumption. Further, excessive leverage of corporates is now reflecting on the performance of banks and corporates. Rising bad loans have already dented banks’ profits and share prices.
Economic Affairs Secretary Shaktikanta Das told reporters in Delhi 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. Attributing the turmoil in stock and currency markets to global developments, he said the rupee had not declined as steeply as currencies of some other countries of the world.
Vinod Nair, Head-Fundamental Research, Geojit BNP Paribas Financial, said the continuous fall in risky assets across the globe and the trend in liquidity moving towards safe haven assets like bonds and gold, are expanding the negative implications on the Indian market.
The turmoil in the domestic market also highlights the possibility of margin pressure which may continue to disturb the market. In overseas stock markets, European stocks traded sharply lower, dragged down by a sell-off in banking and mining stocks, as concern intensified that the global economy is slowing. Hong Kong’s Hang Seng index, which resumed trading today after being shut from Monday through Wednesday for the Lunar New Year holiday, fell 3.85 percent. In South Korea, the Kospi re-opened lower after its three-day holiday, finished the session down 2.93 per cent.