Investors, already nervous over what the Budget might bring in its wake, fled the markets as a dramatic plunge in China’s benchmark index caused big ripples across all Asian markets.
The benchmark Sensex index lost 170.69 points, or 1.25%, to close at 13,478.83 on the Bombay Stock Exchange, while the rival National Stock Exchange’s Nifty fell 48.1 points, or 1.2%, to 33,893.9.
The last six trading sessions on BSE have shaved off 6.41% from Sensex, one of the sharpest pre-budget falls in recent years, well below the record 14,652 the index touched earlier this month.
Bonds also declined after Prime Minister Manmohan Singh said that controlling prices was “not an easy task” and inflation remained a matter of concern. The yield on the benchmark 8.07% note due January 2017 was 7.889% compared with 7.888% the previous day.
The rupee ended lower at Rs44.21 to a dollar due to fresh demand for the American currency from oil companies and weak equity markets.
The Shanghai Composite Index fell by 8.8%, its biggest fall in a decade, as investors cashed in on gains ahead of any government attempts to cool the market. Most Asian markets suffered from the ripple effect with Malaysian KLSE falling 2.81% and Singapore’s Straits Times declining 2.29%. The South Korean Seoul Composite fell 1.05% while the Japanese Nikkei declined 0.52%.
With the Budget hours away, traders and brokerage firms said that the Indian stock markets are more likely to react today to measures announced by the government to combat inflation and promote growth.
“There has been buoyancy in the government’s tax collection and if the finance minister brings down the level of indirect tax in his budget, that will give a big fillip to the market and insulate it from the China effect,” says U.R. Bhat, managing director of Dalton Capital Advisors, a firm that advises foreign institutional investors on investments in India. Market observers are betting that finance minister P. Chidambaram will not announce measures that will dampen the market.
“We are fairly confident that Chidambaram will deliver and the Sensex will continue to rise as the India growth story has not yet lost its steam,” said a senior analyst with a foreign institutional investor.
Rajiv Thakker, director and senior vice-president at Parag Parikh, a Mumbai-based brokerage, notes even the Chinese decline comes after that index had gained around 13% in the last few trading sessions.
The benchmark Shanghai Composite index had gained a whopping 130% in 2006. “One needs to wait and watch to what extent the Chinese melt down will have an impact on Indian markets,” says S. Sreesankar, research head of IL&FS Investsmart, an online brokerage.
The Sensex has now shed 8.5% from its historic high of 14,723 hit in intra-day trading on 9 February 2007.
(Anoop Agrawal of Bloomberg contributed to this story.)