Mumbai: Equity markets fell for the sixth consecutive day as lingering concerns about the European sovereign debt crisis and high inflation numbers in India spooked investors.
The Sensex fell 314 points or 1.9% to 16,462 as many heavyweights tumbled. India’s most valuable company Reliance Industries, the largest cigarette maker ITC and two biggest private lenders: ICICI Bank and HDFC Bank, were the major losers.
European markets remained unimpressed with the winds of political change blowing across two most indebted Eurozone economies - Italy and Greece, which elected new leaders last week. Italian bond yields hovered above 7% ahead of the bond auction.
Spanish bond yields rose to 6.63%, the highest levels since the euro was formed owing to fears of a contagion from the effects of Greece’s debt crisis. Investors feared that Spain, also a heavily indebted economy might be the next in line for a bailout.
Equity markets globally may still have some way to go downhill though. Equity traders appear more optimistic than their currency counterparts and are betting on the European central bank to eventually come to their rescue, argued Michael Cassey of WSJ.
The contagion fear is not just limited to Europe but extends to US banks as well that have exposure to EU debt. “Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” ratings agency Fitch said yesterday. This had a ripple effect on the Wall Street Indices on Wednesday. The US futures were indicating at a quiet opening in the markets on Thursday.
The gloom and doom is not just global. The Indian economy appears weaker than in 2008, when the financial crash of 2008 hit the country’s shores and hence less resilient to face the global storm.
Risk aversion has driven institutional investors away from the Indian equities, said analysts. “The markets are factoring the seriousness of American banks’ exposure to EU sovereign debt, its chain of Credit Default Swaps and risks associated with that,” said Milan Bavishi, head of research at Inventure Growth and Securities.
Food inflation slipped to 10.6% for the week ended November 4, down from 11.81% in the previous week. However, month on month inflation continues to remain near double-digit levels, which will make it difficult for the Reserve Bank of India to press the pause button during the next policy announcement.
With European crisis hanging like a sword on the Indian markets and domestic macro-indicators –such as inflation in poor shape, markets are likely to be volatile. “There is heavy build up of short positions in the market,” said Ashish Chaturmohta, vice president - derivatives and technical analyst at IIFL Wealth. “With the Nifty Volatility Index hovering around 27 levels, market may witness huge swings in coming trading days.”