Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Stock-market-news/  Market participants shocked at Brexit decision
BackBack

Market participants shocked at Brexit decision

As the outcome of the referendum became clearer, global and Indian markets plunged

In India, BSE’s 30-share Sensex tumbled as much as 3.7% or 1,005 points, logging its biggest fall since 24 August to 25,996.33, while National Stock Exchange’s 50-share Nifty fell 3.8% or 310.85 points to 7,959.60 points. Photo: ReutersPremium
In India, BSE’s 30-share Sensex tumbled as much as 3.7% or 1,005 points, logging its biggest fall since 24 August to 25,996.33, while National Stock Exchange’s 50-share Nifty fell 3.8% or 310.85 points to 7,959.60 points. Photo: Reuters

Mumbai: Britain’s decision to exit the European Union (EU) jolted equity markets across the world on Friday, prompting a flight of investors to safe-haven bets.

Volatility and uncertainty will likely shadow markets the world over as Brexit—a term coined to denote Britain’s exit from EU—sets the stage for a messy separation that could take as long as two years.

Prime Minister David Cameron resigned immediately after the result of Thursday’s historic referendum became known.

Indian markets joined a global sell-off that ensued, although they closed off their lows. The BSE’s 30-share Sensex closed 2.24%, or 604.51 points, lower at 26,397.71, after having slumped more than 1,000 points. The National Stock Exchange’s 50-share Nifty closed 2.2%, or 181.85 points, lower at 8,088.60 points. It was the biggest fall since 11 February for both indices.

Elsewhere in Asia, Japan’s Nikkei fell 7.92% and China’s Shanghai Composite Index dropped 1.3%.

European shares nosedived with the UK’s FTSE 100 shedding 4.52%, France’s CAC dropping 8.6% and Germany’s DAX retreating 7.2%.

In the US, Dow Jones Industrial Average fell 2%, while S&P 500 index lost 2.2% in early trade.

According to provisional data from the NSE, foreign institutional investors (FIIs) sold a net of 629.14 crore of Indian shares on Friday while domestic institutional investors (DIIs) injected 114.94 crore in Indian equities.

“While the initial reaction by investors will be negative, further direction for the Indian equity market will depend on the contagion impact of this event and how it impacts the fragile fault lines in a globally interconnected world," Deutsche Bank AG analysts wrote in a note.

Earlier in the day, the Sensex had tumbled as much as 4.04%, or 1,090.89 points, logging its biggest intraday fall since 24 August to 25,911.33, while Nifty had fallen as much as 4.15%, or 343.4 points, to 7,927.05 points.

“This is a huge negative shock. It is completely different from what the Street was expecting," said Andrew Holland, chief executive at Ambit Investment Advisors Pvt. Ltd, pointing that the European markets had rallied on Wednesday, hoping Britain would remain in EU.

“In the short-term, markets are going to be hugely volatile. In the medium term, the question that bothers is what will other European countries do? Is this the disintegration of Europe," added Holland.

NSE’s VIX, or volatility index, jumped 3.37% to close at 18.63, its highest since 2 March, indicating that choppy times lie ahead for the market.

Concerns are rife that other countries in the 28-member bloc may follow Britain’s example and contemplate referendums on their future in the EU.

“From a financial market perspective, this outcome has far reaching implications, as it demonstrates that EU membership can be reversed," Michael Strobaek, global chief investment officer at Credit Suisse, wrote in a note.

Also Read: UK’s EU membership referendum in favour of Brexit

Strobaek said risk assets such as equities, subordinated bank and insurance bonds, and high-yield bonds, are likely to witness a sell-off, while safe-haven assets such as core government bonds, the Japanese yen, the Swiss franc and gold, will be in high demand.

The rupee closed at 67.97 a dollar—a level last seen on 29 February, down 1.06%, its steepest fall since 24 August, from its previous close of 67.25.

The rupee opened at 67.90 against the US dollar and fell as much as 1.42%, logging its steepest fall since November 2013, to touch a low of 68.22.

“It is dollar all the way and all the major currencies are down. Brexit is unexpected and so we are going to see a volatile period ahead. It will not only have repercussions for the currency but also the global markets," said Ashutosh Raina, head of trading at HDFC Bank Ltd.

Public sector banks were seen selling dollars, possibly at the behest of the Reserve Bank of India, around 68.20 levels, according to two currency traders who didn’t want to be named.

Kotak Institutional Equities, an arm of Kotak Securities Ltd. said it has revised its fiscal year 2017 average rupee estimate against the US dollar to 68.5, from an earlier estimate of 67.9.

Deutsche Bank analysts argued that while India’s macroeconomic health is better than that of its emerging market (EM) peers, it may not stay completely insulated in the event of a broad-based sell-off in the near term. “However by virtue of its large domestic market and relatively lesser dependence on exports compared to its EM peers, India may outperform the EM universe, over the medium to longer term," Deutsche Bank analysts said.

This seemed to be the consensus view. “Brexit is a huge event. The overhang will persist and the market will be volatile in the short run," said Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services Ltd.

Analysts have been expecting companies linked to the Sensex and Nifty to post double-digit profit growth in the current fiscal year. If commodity prices, especially crude oil prices, fall further, corporate profits could receive a further boost.

India is the world’s fastest growing major economy, with its gross domestic product expanding 7.9% in the March quarter.

“The medium- to long-term outlook for Indian market remains bullish, as our domestic economy is consumption driven, and not export-dependent. Our economy is growing at a good rate, inflation is coming down," Oswal said.

Reuters and Ravindra Sonavane contributed to this story.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 24 Jun 2016, 10:54 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App