Mumbai: As major Asian markets held their ground, the Bombay Stock Exchange’s (BSE) benchmark Sensex plunged more than 438.44 points to close at 13,989.11 on concerns that the current ruling coalition in India would not last, even as the overhang of a credit crisis created trader trepidation.
The broader Nifty index of the National Stock Exchange (NSE) lost more than 134 points, or 3.19%, to close at 4,074.9. Analysts said many large institutional players were still in a wait-and-watch mode.
Traders bet the chances of a general election had increased, with key allies threatening to withdraw their support to the ruling coalition government at the Centre, as differences over a nuclear deal with the US widened, and both sides refused to back?down.
An earlier-than-expected general election could set back economic reforms as any change in power could imply a change in policy.
The political situation weighing on the market had increased pressure but the sell-off was Asia-centric and not merely domestic, says Jignesh Shah, head of equities at the private banking division of ABM Amro Bank in India.
“We are not buying or selling in this market,” said Jon Thorn, chief executive of India Capital Management Ltd, the Hong Kong-based hedge fund, which has managed an offshore Indian portfolio since 1994. “It’s best to sit and watch over the current problems till the markets stabilize.” Thorn also said that all hedge funds normally do riskier trades in a highly volatile market.
The trade volumes were low on Tuesday. The cash turnover at the BSE was marginally higher than Monday’s Rs4,201 crore. At the NSE, the total trade volume was about Rs45,485.5 crore compared with Rs40,075.04 crore in the previous session. Foreign institutional investors (FIIs) slowed their sell-out of Indian equities. Jigar Shah, head of research at KR Choksey Shares & Securities Ltd says the low trade volumes resulted from many big investors keeping away from the market.
FIIs were the net sellers of about Rs138 crore, according to the BSE website. In the past three trade sessions, FIIs had offloaded more than Rs7,000 crore of equity assets in India. Indian mutual funds, and in the meanwhile, had made net purchases of more than Rs826 crore.
The Hang Seng index of Hong Kong lost about 900 points to close at 21,729.35. The Japanese Nikkei and South Korea’s Kospi also slipped sharply from their peaks to end the day with narrow gains. India was among the worst losers along with the indices of Thailand and Pakistan, while Singapore, Indonesia, Taiwan and Malaysia also ended the day with losses.
“All major Asian indices moved down sharply from their peaks mid-morning as the yen strengthened in the currency market. The foreign investors and the domestic institutions are largely on a neutral call,” Shah said. The Japanese yen moved 0.47% higher to 114.34.
Investors would have sold their equities to buy yen, because a higher yen would have caught them off-guard, especially those who used the zero interest rate of the yen to borrow in the currency to buy equity or other higher yielding currencies. “Markets are not stable and this volatility could continue in all the Asian markets for good many days,” said Kinston Lin, senior investment manager at Prudential Brokerage Ltd in Hong Kong.