The American central bank’s monetary stimulus exit plan spooked the financial markets, battering the Sensex by a whopping 526 points, its biggest single-day fall in nearly two years as investors sold shares across the spectrum, amid the rupee hitting a lifetime low of 59.985.
After US Federal Reserve chairman Ben Bernanke Wednesday night said he would likely slow the bond-buying programme this year and end it in 2014, global markets went into a tizzy as $85 billion-a-month scheme offered easy money.The Sensex opened with a sharp downside gap and continued to decline further amid rupee falling like a stone to hit record low of 59.985 against the dollar. The benchmark index kept falling like nine pins even as finance ministry tried to sooth frayed nerves. It ended down 526.41 points, or 2.74 per cent, at over two-month low of 18,719.29. The 526-point drop is the biggest since 704-point crash in September 2011.
As many as 28 out of 30 Sensex scrips closed down. With overall 1,650 stocks ending as losers, investor wealth worth Rs 1.57 trillion vanished in Thursday’s session."It was absolute bedlam in financial markets triggered by comments from the Federal Reserve overnight…there was nothing new in Fed statement but huge build-up of leveraged positions led to the cascading fall across asset classes," said Amar Ambani of India Infoline brokerage.
Sustained outflows, weakness in European markets and tepid Chinese manufacturing activity also affected markets. Market saw across-the-board sell-off as all 13 indices closed with losses of up to 5.1 percent. Concerns over withdrawal of funds by FIIs and consequent impact on rupee as well as financing of CAD, hit sentiments further, said Dipen Shah of Kotak Securities. The broader Nifty dipped below 5,700 level losing 166.35, or 2.86 percent to close at 5,655.90.
Globally, Chinese, Hong Kong, Japanese, Singaporean, Taiwanese and Korean markets fell by 1.35-2.88 percent, while the US and the Euorpean markets lost more than 3 percent. The ultra-low borrowing rates the Fed has engineered have been 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 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," says Shubham Agarwal of Motilal Oswal Securities. While there is 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.
