Sensex, the lead Bombay Stock Exchange (BSE) index, fell 3.49%, or 453.36 points, to close at 12529.62 points on Wednesday as investors rushed to sell stocks, taking a cue from the near-2% crash in the Dow Industrial, the leading New York Stock Exchange Index. The broad-based 50-stock NSE Nifty lost 129.45 points, or 3.43%, to close at 3641.10.
Tuesday’s crash in the Dow was the second-largest one-day fall of the US index in almost four years. The largest fall in four years was the 27 February fall of 3.29% and both have been driven by the same factor—fear about a slowdown in the US economy. The immediate trigger was the release of data revealing an increase in US home-loan defaults, indicating an economic slowdown.
Most Asian markets, too, recorded losses on Tuesday with Japan’s Nikkei losing 2.92%, Hong Kong’s Hang Seng, 2.57%, Singapore Straits Times Index, 3.5%, Seoul Composite Index, 2%, Shanghai Composite Index, 1.97%, and Taiwan Weighted Index, 1.48%. Wednesday’s fall has shaved off more than Rs98,426 crore worth of investors’ wealth, bringing down BSE’s market capitalization to Rs34.04 lakh crore.
With this fall, the Sensex has lost close to Rs4.85 lakh crore worth of market capitalization since 8 February, when the benchmark index closed at a historic high of 14,652.09.
Since 26 February, a day before the global stock-price correction started, triggered by the Chinese market crash, fears about the slowing US economy and yen carry trade, the Sensex has fallen 8.20%.
Other global markets, too, have fallen by a similar margin, signalling the growing global linkages. For instance, Nikkei fell by 8.45% and Hang Seng, by 8.15%. Among other markets, the Brazilian Bovesa lost 7.48% in the last fortnight, London’s FTSE 100, 6% and Dow Jones, 4.40%. In May 2006, when the Sensex had lost more than 30%, it had a sharper correction than some of the other global markets.
“Earlier, India was a defensive player. This means that when the world markets fell, Indian stocks made relative gains. This is no more the case in the last few years. The Indian market crashes of October 2005 and May 2006 and the current one are nothing but global risk events,” says Ratnesh Kumar, India strategist for Citigroup Investment Research, indicating the growing linkage between foreign fund flow and the risk appetite of foreign investors. There is fear in the market that the slowing global economy will lead to withdrawal of funds by foreign funds.
“The market has been very volatile and driven by global liquidity and global concerns,” says R. Sreesankar, head of research, IL&FS Investsmart.
According to him, global liquidity concerns will be driving the market in the near future. “Global liquidity was one of the factors that drove the market for the better part of last year, despite the good performance put up by the Indian economy and local corporations. It is only natural that when there is a fear of outflow of global liquidity, the market should respond accordingly,” adds Sreesankar.
Foreign funds have been net sellers this month, with the difference between their buys and sales rising to $434.3 million (Rs1,925.3 crore) till 13 March. They, however, continue to remain net buyers in calendar year 2007 to the tune of $1.3 billion.
Foreign funds, accounting for 10% of the total trade turnover and a much higher percentage for cash-based buying, pumped in Rs36,540 crore in 2006, Rs 47,181 crore in 2005 and Rs38,965 crore in 2004. With foreign funds selling in the stock market, the currency market saw some volatility,, with the rupee closing lower at 44.25 against the greenback, down from 44.20, its previous close.
All BSE sector indices ended the day in the red. Banking, infotech and capital goods were the worst hit with ICICI Bank, Wipro, Satyam, Infosys, Bharti Airtel, Reliance Communication, ABB, Siemens and SAIL losing heavily.