Market shock: Sensex, Nifty slump, tracking global rout
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India’s benchmark Sensex index slumped 3.67% in intraday trading on Tuesday, before rebounding to erase more than half of the day’s losses, capping a volatile day of trading. The losses in India tracked a global rout in stocks from New York to Tokyo, even as fears of accelerating inflation sent bond yields surging.
At the end of trading in Mumbai, BSE’s 30-share Sensex dropped 561.22 points, or 1.61%, to 34,195.94 points, while the National Stock Exchange’s 50-share Nifty fell 1.58% to 10,498.25. The indices fell for a sixth straight session.
Earlier in the day, the Sensex plunged 1,274.35 points to 33,482.81, while Nifty declined 390.25 points to 10,276.30. Both indices plunged nearly 3.7% in intraday trading, their biggest decline since August 2015. The Sensex and the Nifty are down 5.75% and 5.68%, respectively, from their 29 January peaks of 36,283.25 and 11,130.40.
Around Rs9.87 trillion worth of investments have been wiped off over the last six trading sessions, the longest losing streak in four months, largely tracking the global sell-off.
“For now, risk is off the table. So, if people think they want to sell EMs (emerging markets) and if the turmoil continues, the carnage could worsen. I would think the global markets could stabilize though,” said Andrew Holland, chief executive of Avendus Capital Alternate Strategies.
“Global growth is fine. I am okay with India’s valuations too after the fall. The expectations from Indian market have come off after the rally,” Holland said.
The Sensex now trades at a one-year forward price-to-earnings ratio of 17.93 times, down from 19.1653 on 29 January. It is still higher than the five-year and 10-year historical averages of 15.6 times and 14.94 times, respectively.
All sectoral indices closed in the red on BSE on Tuesday, and market breadth was extremely weak as losers were 4.5 times the number of gainers on the exchange. Software exporters contributed the most to the losses for Sensex. Infosys Ltd and larger rival Tata Consultancy Services Ltd fell 2.62% and 3.58%, respectively.
The global rout was triggered on Monday after strong US jobs data raised concerns that inflation was firming up and sent bond yields higher. In overnight trade, Wall Street’s Dow Jones and S&P 500 benchmarks plunged 4.6% and 4.1%, respectively on Monday, registering their biggest drops since August 2011. The fall was exaggerated due to technical selling pressure that had a spiralling impact on the already declining market.
Elsewhere in the world, Japan’s Nikkei index slumped 4.7% at the close, while the pan-European STOXX 600 was down 1.77% at 9.50pm India time.
The S&P 500 plunged as much as 2.1% at the open of trading on Tuesday before regaining ground. The Dow Jones Industrial Average declined more than 500 points before it, too, recovered some of its losses. At 9.50pm India time, both indices were down 0.25%.
“I’m not worried about the macro economy, but I’m worried about the technical selling pressure because there has been so many investment strategies based on low volatility and trend following,” Hertta Alava, director of emerging market funds at FIM Asset Management Ltd said in an email from Helsinki.
“Emerging markets could face some outflows, because a big part of the recent inflows has gone to ETFs (exchange-traded funds). But fundamentals in emerging markets are still quite good, so there could be a buying opportunity soon,” said Alava, adding that equities are still attractive compared to other asset classes. FIM manages €350 million of emerging market assets. “I think this crash is a good reminder, what are the risks in more exotic products like these ETFs shorting volatility or cryptocurrencies. Also, there is lot of institutional money invested in more illiquid alternative investments, which could become a problem at some point,” warned Alava.
Meanwhile, experts said it was best for investors to stay calm in a volatile market like this. In recent times, retail investors—who earlier largely preferred traditional saving channels like fixed deposits and gold—have started channelling their savings into equities, largely through the mutual fund route.
“Investors should not panic in a volatile market like this. They should stay calm and stay static. From the peak, the market is down around 5-6%. A 10-20% correction in a market like this is very normal,” said Rashesh Shah, chairman and managing director of Edelweiss Financial Services Ltd. “This is a part of global correction. At least, Indian markets are showing some resilience,” said Shah.