Mumbai: India’s bellwether Sensex fell 6% on Monday, down 951 points to close below the 15,000 level—the index’s second largest fall ever in absolute terms— as stocks markets worldwide slumped after the near-collapse of Bear Stearns Cos Inc., Wall Street’s fifth largest investment bank, emergency actions from the US Federal Reserve and fears of more casualties.
The broader S&P CNX Nifty lost 242.70 points, or 5.1%, to 4,503.10. All 13 industry indexes on the Bombay Stock Exchange fell, dropping by between 3.2% and 9.7%. The consumer durables index was the worst performer, according to data on the exchange’s website. From its peak of 10 January, the Sensex has corrected at least 30%.
BIG FALL (Graphic)
“The market is in a febrile state,” said Richard Heald, a partner and managing director of European investment bank NM Rothschild and Sons.
“People are getting scared because of the fear of the unknown,” said Sandeep Sabharwal, chief investment officer at Mumbai-based JM Financial Mutual Fund, who oversees $1.3 billion (Rs5,304 crore) in equities.
Indeed, gold prices zoomed past all previous records to open at a new peak of around Rs13,500 in the bullion market here on Monday on brisk buying.
Losing it: Disappointed investors in Mumbai watch as the BSE Sensex takes a dive on Monday. (PTI)
The valuation at which Bear Stearns changed hands shocked investors as JPMorgan Chase and Co. took over the firm for $240 million, or $2 a share, some one-fortieth of its share price a month ago. This, in absolute terms, reflects less than the value of Bear Stearns’ Manhattan office. Following this fire sale, the US Federal Reserve cut its discount rate, the rate at which banks borrow from the central bank, by a quarter to 3.25% from 3.50% and created a lending facility for investment banks at the New York Federal Reserve Bank, first time after the Great Depression.
“The Fed’s direct response...is because (of) the fear of a systemic unravelling,” said Christopher Wood, equity strategist of CLSA Asia-Pacific, an Asian brokerage.
Today, the Federal Open Market Committee (FOMC), the policymaking body, will meet and analysts now expect at least 50 basis points cut in the Fed rate. One basis point is one hundredth of a percentage point. Last week, the Fed had made provision for $200 billion to provide liquidity support to firms hit by the mortgage crisis-related losses.
While Asian markets set off the global declines, the baton was passed to European markets where indices dropped sharply on Monday. The UK’s FTSE 100 index was down 3.36% even as the Bank of England weighed in with £5 billion (Rs32,250 crore) in extra three-day funds to provide liquidity.
In early trading, the Dow Jones Industrial Average as well as the Nasdaq were down, though not as much as global markets earlier in the day. With Monday’s fall, the gain made by the Sensex during the 2007-08 fiscal year set to close 31 March stands at 13.3%.
Two in every five stocks on the Bombay Stock Exchange (BSE) is now trading at their one-year-low levels and 125 stocks are now trading at their all-time lows. Collectively, investors have lost Rs22 trillion worth of wealth in the market meltdown. The representative indices of mid- and small-sized Indian firms traded on BSE suffered more losses than the Sensex.
Palpable fear appeared to have taken hold of the Indian market, a new sentiment despite recent falls. Portfolio fund managers and brokers, who have passionately been arguing about value-investing and bottom-fishing opportunities between February and mid-March, are now turning cautious.
“Don’t buy (stocks) hoping for a miracle immediately,” said domestic retail brokerage India Infoline Ltd, in its Monday morning client note. Many other brokerages, too, are asking their clients to adopt a wait and watch policy.
Credit Suisse asked investors to stay underweight on India. “Indian fundamental growth is linked to the world events,” analysts Nilesh Jasani and Arya Sen wrote in a note to clients on Monday. “The links are less due to trade which is well recognized, but they are quite strong due to funding gaps and commodity dependence.”
The provisional data from BSE indicated that the foreign institutional investors (FIIs) had net sold Indian equities worth Rs658 crore in the cash markets, even as domestic institutions made some buys. FIIs have sold $3.43 billion worth of Indian equities so far this year, according to Bloomberg figures.
Banks led the Indian decline, paced by ICICI Bank Ltd, which slumped the most in six-and-a-half years. Reliance Industries Ltd fell to its lowest in six months as the price of oil reached a record.
The rupee fell to a six-month low as losses in stocks raised speculation global funds will reduce their local share holdings. The rupee declined as much as 1% to 40.845 per dollar, the weakest level since 6 September, before closing at 40.725, as per Bloomberg data.
“The impact of global financial market development is going to be deep on India, particularly on the rupee, because inflows will slow,” said Ajay Mahajan, head of financial markets at Yes Bank Ltd. in Mumbai. “I expect pressure on the rupee in the near term” to weaken.
(Mint’s Ashwin Ramarathinam and Bloomberg’s Saikat Chatterjee and Anoop Agrawal contributed to this story.)