Global Markets witnessed selling on Monday after sub-prime worries resurfaced, this time looming larger, after the biggest bank in the US said it has lost about $11 billion in mortgage-related securities in the past month.
New York-based Citigroup's Chief Executive Officer Charles Prince announced his resignation after the bank said it would write down a further $8-11 billion in losses, over the $6.5 billion it announced a few months ago.
The benchmark Sensex of the Bombay Stock Exchange closed lower by 385.45 points, down 1.93 per cent, to close at 19,590.78, while the broader Nifty of the National Stock Exchange closed at 5847.30 points, down by 85.1 points or 1.43 per cent. Hong Kong's Hang Seng witnessed a deeper cut, down by 5 per cent or 1,526 points to end the day at 28,942.32 points, after Chinese Premier Wen Jiabao's comments suggested a potential further delay in allowing Chinese individuals to buy stocks in Hong Kong directly.
Market experts said that fears about a new sub-prime crisis and an expected slowdown in the US could result in a re-alignment of risk appetite across global markets.
"We believe the US economy is slowing down on the back of mortgage concerns and its impact on consumption. Emerging markets are now less vulnerable to a slowdown in the US. However, it will be unfair to say that a slowdown in the US would not affect these markets. Hence, we believe that markets are inappropriately pricing for risk and we see a reversal in risk appetite going forward," said Shuchita Mehta, senior economist of Standard Chartered Bank.
Managing Director of DSP Merrill Lynch Andrew Holland agrees. He said: "It may take a bit of risk appetite out of emerging markets. Emerging markets have had a good run and we expect some cool off in the very short term."
However, Holland does not expect a meltdown in these markets. "Though the problem has been worse than expected, there would not be any shock to the system, as the growth story is on track," he said.
While most BSE sectoral indices ended Monday in the red, the BSE Small Cap index closed higher by 1 per cent, while the mid-cap, consumer durables and realty indices held onto positive territory. Despite a fall in key indices, market breadth remained marginally positive with 1,433 stocks advancing against 1,321 declines.