Mumbai: India’s key equity indices lost more than 2% to close at fresh lows for the year on Wednesday, a day ahead of derivative contracts’ expiry, as fears of a global economic slowdown worsened after data showed that China’s manufacturing sector shrank the most in 32 months in November.
In a market weighed down by worries of a swelling current account deficit as import bills rise on a weak rupee, a finance ministry official said the government had no plans to lower the securities transaction tax, adding to weak sentiments. Political tension and concerns about policy stasis were added to this mix, with opposition protests leading to Parliament being disrupted.
BSE bellwether 30-share Sensex lost 365.45 points, or 2.27%, to close at 15,699.97.
The broader 50-share Nifty of the National Stock Exchange (NSE) dropped 105.90 points, or 2.2%, to end at 4,706.45, piercing the 4,720 level from where it has bounced back multiple times in the recent past. The index is now more than 600 points below its 200-day moving average.
“We may see selling tomorrow and the Nifty may test 4,600 levels. We expect a bounce back from there for the short term. Once 4,600 is breached, the next support is at around 4,400,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd.
The Sensex has lost 1,869.56 points, or 10.6%, in the last 10 trading sessions, the biggest loss since 2008 after the collapse of US investment bank Lehman Brothers.
“Today’s fall is due to two major domestic factors—rupee depreciation and adjournment of the Lok Sabha. There is a cascading effect. Margin calls are happening and there is no fresh buying. Unless the rupee stabilizes, our markets will not be able to consolidate at higher levels even if global indicators turn positive,” said Ambareesh Baliga, chief operating officer at Way2Wealth Brokers Pvt. Ltd.
The rupee closed at 52.37 to the dollar, lower than Tuesday’s close of 52.32, after dropping to 52.43 in intraday trade. The Reserve Bank of India’s dollar sale helped the currency recover during the day.
The HSBC flash Purchasing Managers’ Index (PMI) for China dropped to 48 in November, the lowest since March 2009, from 51 a month ago. A PMI reading below 50 shows the economy is contracting. Manufacturing activity in Germany, too, fell to a 28-month low in November.
“Global factors will be key drivers of the markets. Our view is that growth will disappoint and earnings growth estimates of analysts will be revised down,” said Jyoti Jaipuria, head (India research) at DSP Merrill Lynch.
Volatility has been the theme in equity markets for several months now, ever since fears of a double-dip recession in the US emerged and the sovereign debt crisis in the euro zone broke out and cut across global equities.
NSE’s volatility index, India VIX, a gauge of risk and fear in the market, rose 12.17% to 30.68. The last time Nifty tested the 4,700 level, India VIX was above 33.
“We think the market will be range-bound over the next six months. The silver lining is that expectations are low. Hence, any strong policy reforms by the government can be a positive surprise,” said Jaipuria.
Foreign institutional investors (FIIs), the key drivers of Indian stocks, were net sellers of equity worth Rs1,186.42 crore on Wednesday, while domestic institutional investors bought stocks worth a net Rs926.16 crore, according to provisional data on the NSE website. FIIs have bought stocks worth a net $276 million (Rs1,438 crore today) in the current year so far.
Traders are expecting a further downside on the indices as the most number of contracts were added on Nifty puts, with the 4,500 strike expiring in December. Nifty December puts added 1.2 million contracts.
On BSE, 316 stocks hit the lower circuit breaker, while 127 recorded new lows. Market breadth was highly negative on the bourse, with 2,916 stocks declining against 767 advances.
Sectorally, BSE consumer goods index (down 3.04%) lost the most, followed by BSE Teck (down 2.65%), BSE IT (down 2.48%) and BSE Oil and Gas (down 2.41%).
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Reuters contributed to this story.