Global Crash, Made In China

Worst Ever: Sensex Plunges 1,625 Pts, Rs 7L Cr Investor Wealth Wiped OutRe Loses 82p, At New 2-Year Low Of 66.65|$

Contd..In the 1970s and early '80s, Indira Gandhi and her inner circle would often raise the bogey of a mysterious, malevolent and invisible `foreign hand', which was apparently hell-bent on plunging India into turmoil and trouble. Several decades later, a very visible foreign hand pushed the Indian markets off a cliff, sending the sensex hurtling to its worst single-day loss in points from one session close to another. The only consolation, if any , was that the body attached to the foreign hand was itself taking an even worse battering.The sensex crashed a record 1,625 points to 25,742, a one-year low level, leaving investors poorer by Rs 7 lakh crore (over $100 billion) while the rupee closed at a two-year low of 66.65 to a dollar. The `Black Monday' crash was caused by fears of a deep and long-lasting slowdown in the Chinese economy , the second largest in the world, which accounts for 15% of global GDP and half of all global growth.

Contd..Foreign funds took a record Rs 5,275 crore out of Indian stocks. Unusually , each of the 30 sensex and 50 Nifty constituents closed in the red.The global financial bloodbath started after the Shanghai composite index lost 8%, proving ineffective a series of steps the Chinese government and market regulator had taken in the last few weeks to stem outflow of money from the country .As a result, Japan's Nikkei and the Hang Seng in Hong Kong too crashed over 4.5% each. Major European markets opened with over 4% losses and the Dow Jones dipped over 1,000 points in early trades, though it bounced back later to offer a glimmer of hope.Along with stocks, several emerging market currencies competed in a race to the bot tom while the dollar and the Japanese yen rallied.

Contd..Both the government and the RBI governor stepped in to calm markets. Finance minister Arun Jaitley downplayed the selloff, saying it was “transient and tempora ry in nature“.Fund managers are also worried about the possibility of the first hike in rates in nearly a decade in the US--the largest economy in the world--as they are unsure of how global markets will re act. Most big players on the Street are hopeful that once the dust from the current global carnage settles, India could stand out as one of the top investment destinations. As global investors are gripped by fear and uncertainty in the short run, India is most likely to be bracketed along with fundamentally weaker emerging markets like China, Brazil and Russia because of the risk avoidance attitude among foreign fund managers.“Fundamentally nothing has changed in the Indian market in the past few weeks. Today's fall was led by a global risk-off mood that has set in with the US and Europe falling, mirrored by the regional markets, continuing weakness of the rupee, and at the same time redemptions from exchange traded funds (ETFs),“ said Avinash Gupta, MD & head of institutional equity sales, Bank of America Merrill Lynch.

Contd..“There is still room for markets to correct further but a sustainable pullback before the September 17 US Fed announcement is looking unlikely . Some global investors are likely to take a stock specific approach, that is buy into stocks that they believe in and which have particularly been beaten down recently ,“ Gupta, who heads one of the largest foreign broking operations in India, said.In the Indian market, real estate and metal stocks were the worst hit. Dealers said real estate stocks crashed because investors believe that with equity market too showing weakness, the already struggling real estate sector may see its troubles aggravating while metal stocks crashed on fears that China, the largest importer of metals till recently , will cut down on its consumption of commodities drastically . Globally commodity prices are hovering at levels not seen since 1999 though gold, considered a safe haven during uncertain times, recorded a smart recovery .

Contd..The day's selling erased about Rs 7 lakh crore from BSE's market capitalization, now at Rs 92.4 lakh crore. After about two months BSE's market cap has again fallen below the Rs 100 lakh crore mark.Monday's sharp fall, that saw several of the midcap and small cap stocks crashing over 20% each, may also lead to margin selling of stocks of speculators by brokers on Tuesday morning. At times of sharp declines in stock prices, if speculators who had bought stocks on borrowed money can not make up for their losses, brokers are forced to sell those stocks to cut further losses.Such selling, called marginbased offloading, often pulls the market even further down, thus delaying a quick recovery .

10-yr bond yields harden to 7.89%Mumbai: Along with the stock market, the domestic bond market also witnessed a massive selloff on Monday with the benchmark yield on the 10-year government securities hardening 12 basis points (100 basis points = 1 percentage point) to 7.89%.Bond dealers, however, were surprised by the market reaction since, usually, bonds and stocks move in opposite directions and they believe the gilts could soon reverse the trend. “Domestic economy has adequate number of shock absorbers,“ said Soumyajit Niyogi, interest rate strategist, SBI DFHI, one of the leading bond houses in India.

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