Indian equities slumped 2% on Thursday as world indices retreated on speculation that the US Federal Reserve may start to wind down its quantitative easing programme over the next few months. That, together with a drop in the HSBC Flash PMI for China to a seven-month low of 49.6 raising concerns about growth in China, sent the markets tumbling.
Both Sensex and Nifty fell for the fourth-consecutive day and ended below their pyschologically important levels of 20,000 and 6,000, respectively. The Nifty posted its biggest single day fall since March 22, 2012.
On Thursday, the 30-share BSE Sensex fell 388 points, or 1.93%, to 19,674, while the broader 50-share Nifty closed lower by 127 points, or 2.09%, at 5,967. With Thursday’s fall, markets may close the week with losses after five straight weeks of gains. The Sensex had risen about 11% in the past five weeks to 20,286 at the end of last week.
US Fed chairman Ben Bernanke said on Wednesday that the decision to scale back the Fed’s current bond buyback programme could be taken at one of its next few meetings. The statement that was perceived as negative by investors worldwide as it could signal a tighter liquidity and slowdown in fund flows into emerging markets like India.
Adding to the negative news flow was the dismal factory output data from China, which fell to a seven-month low and showed an unexpected contraction in China’s manufacturing sector, according to a report from HSBC Holdings and Markit Economics. The weak factory data added to concerns that the economic recovery in China may be slower than expected.
Equity markets around the world ended lower. Among Asian indices, the Hang Seng, Straits Times and the Shanghai Composite indices fell 2.5%, 1.77% and 1.16%, respectively. The Nikkei 225 fell the most — by a whopping 7.3% — as Japan’s 10-year government bond yields rose and touched 1% for the first time in a year. The Nikkei 225 had climbed to its highest level since December 2007 on May 15. European indices were trading deep in the red. At 5.30pm IST, the DAX and the CAC were down over 2% and the FTSE 100 was down about 1.8%. Dow Futures were trading sharply lower ahead of US’ trading session on Thursday.
Nonetheless, foreign institutional investors (FIIs) bought Indian equities worth $56 million on Thursday, even as domestic institutional investors sold shares worth $96 million, according