Sensex tumbles 850 points on oil, Greece concerns4 min read . Updated: 07 Jan 2015, 01:10 AM IST
Index closes over 3% lower as falling oil prices and political uncertainty in Greece lead to risk aversion
Mumbai: India’s benchmark equity index, the Sensex, tumbled more than 850 points on Tuesday, posting its biggest fall in percentage terms in sixteen months, as tumbling oil prices and political uncertainty in Greece led to risk aversion, pushing world markets lower. The correction in prices may give investors an opportunity to buy into stocks at more reasonable valuations, said experts, many of whom believe that the Indian equity markets are set for a multi-year bull run if economic growth revives in 2015-16 as it is widely expected to.
In terms of points, Tuesday’s fall in the Sensex is the steepest since 6 July 2009, and the seventh-biggest fall for the index ever. In percentage terms it is the biggest drop since 3 September 2013.
The 30-share S&P BSE Sensex shed 3.07%, or 854.86 points, to close at 26,987.46 points, while the 50-share CNX Nifty of the National Stock Exchange (NSE) declined 3%, or 251.05 points, closing at 8,127.35 points. In intra-day trades, the Sensex fell as much as 3.25%, or 905.26 points, to 26,937.06, while Nifty fell as much as 3.19%, or 267.05 points, to 8,111.35.
NSE’s India VIX, a measure of market volatility, spiked 23.1%, the most since 16 August 2013, hinting at choppy trading ahead.
The fall in the Indian markets came in response to a global sell-off.
On Monday, in US trades, oil plunged another 5%, triggering selling across equity markets. The US Dow Jones Industrial Average fell 1.9%, while the broader S&P 500 lost 1.8%.
“Risk appetite has come down as FIIs (foreign institutional investors) with exposure to oil and oil-dependent economies are selling heavily across asset classes," said S. Naren, chief investment officer at ICICI Prudential Asset Management Co. Ltd, pointing to the continuing slide in crude oil prices.
“We have historically seen that whenever Indian markets have declined due to global reasons, it is ideally a buying opportunity," added Naren.
On Tuesday, the fall in oil continued, taking prices to a five and half year low. Brent crude fell to below $52 a barrel as fears of a supply glut worsened after both Iraq and Russia reported record oil supplies in the past week. South Arabia also cut prices for European buyers, causing a further dip, Reuters reported.
Talk of a possible exit of Greece from the European Union, if the country fails to stick to the terms as part of a bailout package in 2012, also unnerved investors.
General elections in Greece are scheduled for 25 January and reports suggest that the left-wing Syriza party, which had opposed the terms of the bailout package, may be gaining support.
“People are getting worried about Greece, the sharp decline in crude oil prices and the eventual impact on the large crude producing countries, which is leading to a lot of risk aversion," Sam Mahtani, director of emerging markets at F&C Investments, which manages $3.5 billion of emerging market assets, said in a phone interview from London.
Investors should not panic and should remain focused on good quality assets, added Mahtani.
“I think it is a very good opportunity for those who want to accumulate Indian stocks from a medium-term perspective, as India is a direct beneficiary from a drop in crude prices, and the outlook for India stocks remain optimistic. We are overweight India at this point of time," said Mahtani.
According to provisional figures available on the stock exchange, FIIs were net sellers of Indian equities on Tuesday. FIIs sold a net of ₹ 1,570.76 crore, while domestic institutional investors were net buyers at ₹ 1,189.65 crore. FIIs pumped in a net of $16.03 billion in Indian equities in 2014, driving the benchmark Sensex 29.42% higher in the course of the year.
In a note on 26 December, economists at HDFC Bank Ltd pointed out that the recent sharp and possibly permanent reversal in oil prices could impinge on an important source of dollar liquidity.
High oil prices over the last few years and the large cash buffer this has allowed oil producers to build up have been an important contributor to international dollar liquidity and a vital support to asset prices, said HDFC Bank economists Jyotinder Kaur, Shivom Chakravarti, Tanvi Garg.
That is a popular view.
“I think the damage in the markets is largely due to the sharp fall in crude oil prices," said Deven Choksey, managing director and chief executive officer of KR Choksey Shares and Securities Pvt. Ltd.
“Global firms having exposure to various asset classes are facing collateral damages and are selling basket of assets without considering the merits," added Choksey.
In Tuesday’s trade, all sectoral indices of the BSE closed in the red. Oil and gas stocks led the decline, with the sector index dropping 4.2%.
BSE realty and metal indices were down 3.7% and 3.5%, respectively. BSE capital goods, power and consumer durables indices were down 3.2%, 3.1% and 3.1%, respectively. BSE Bankex closed 3% lower.
Banking stocks faced selling as well with top lender State Bank of India declining 4.1%, while rivals ICICI Bank Ltd and HDFC Bank shed 4.2% and 1.5% respectively. Mortgage lender Housing Development Finance Corp. Ltd declined 4.7%
“The decline in Indian markets is reflecting what is happening globally. FIIs are cutting down on risk and are key sellers, which is also evident from the strong pressure on the frontline stocks, where they are concentrated," said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.
BSE Mid Cap and BSE Small Cap indices declined nearly 3% each but fell less than the benchmark indices.
Reuters contributed to this story.