The Indian stock markets ability to withstand global fluctuations was severely tested on Wednesday when a sharp rout in Chinese bourses following investor fears of a slowing economy, singed the markets here with the Bombay Stock Exchange (BSE) alone shedding more than 480 points.
However Indian retail investors who have been recently increasing purchases in stock markets, can stay invested as the fall is widely expected to be short-lived say market intermediaries.
Wednesday’s fall was so widespread that apart from Hindustan Lever, which closed unchanged, all other heavyweights in the 30-share Sensex index were down in the red. The Sensex lost 1.7% or about 484 points to close at 27,687.72 points, while the NSE’s Nifty fell 148 points or about 1.7% to close at 8,363.05 points.
Interestingly, the decline came a day after Indian stock markets defied global nervousness on the Greece crisis, and rose even as the rest of the Asian markets had plunged.
“Market allocations are still not country-specific. So any one market’s non-performance (China) will prompt global funds to sell that region’s underlying security,” said Nitin Jain, CEO, Global Asset & Wealth Management at Edelweiss Financial, explaining why foreign factors still hold sway in India. “What is also worrying investors is that global stance on Greece has hardened increasing the possibility of that country exiting the euro. Now, this is unknown. Nobody knows the real implications of such a development,” he added.
The slowdown in the Chinese economy was fuelled by their government’s efforts to move away from an export-heavy policy and to focus on the large domestic market alone. This has re-rated securities and prompted more measures by the government to artificially prop up securities. As China is strongly-linked to commodities, the fall in the stock market also hit the sector.
“China is down about 33% from recent peaks it created exactly a month ago. The panic is aggravating in China, as almost a third of their (listed) companies halted trading, leading to liquidity issues. Money will see a flight to safety which will be the US dollar and US treasury leading to weakness to other currencies. This may provoke investment managers to reduce their positions in emerging markets. This may hurt India a bit in the short-term,” said Motilal Oswal, chairman of brokerage Motilal Oswal Financial Services.
Some of the losers on Wednesday included Vedanta Ltd and Yes Bank which closed down around 8.77% and 7.77% respectively, while Tata Steel was down 4.7%.