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 to provisional BSE data.
Of the 30 Sensex stocks, 28 declined on Wednesday. In the broader market, breadth was weak with 1,737 stocks declining and 592 stocks advancing. All of the 13 S&P BSE sectoral indices ended lower, with the capital goods and realty indices losing over 5%. Index heavyweights Reliance Industries, L&T, SBI and ICICI Bank ended as major losers, collectively contributing 240 points to Sensex?s fall. SBI, the country?s largest lender, fell 7.96%, as it posted its first quarterly net profit drop in two years.
Market participants believe that the Nifty could consolidate near 6,000 levels. ?To trend higher, the market would require an improvement in the real economic indicators or growth-inducing reforms. Technically, the near-term support for the Nifty is placed at 5,940 and a fall below this would lead to a further correction,? said Amar Ambani, head of research at IIFL.
The NSE cash turnover on Thursday was at R13,431 crore, higher than the six-monthly daily average of about R11,400 crore. Turnover in derivatives was about R2.65 lakh crore and the daily average for the past six months was R1.39 lakh crore. India VIX rose 5.6% to end at 18.73.
