The Indian equity markets went in a free fall early on Thursday with the benchmark Sensex shedding more than 1,000 points during intra-day trading as interest rate-sensitive sectors like banks, financials and auto lost heavy ground amidst a global sell-off.
Though the benchmarks did manage to recover a large part of the intra-day losses, the indices still closed at their lowest level in six months with almost ₹3 trillion of investor wealth eroded in a single day.
The 30-share Sensex lost 759.74 points or 2.19% to close at 34,001.15 as 27 of its constituents ended the day in the red. Index heavyweights like State Bank of India, M&M, ICICI Bank, Tata Motors, HDFC, Maruti Suzuki India and Kotak Mahindra Bank all lost ground.
The broader Nifty closed at 10,234.65, down 225.45 points or 2.16%.
Incidentally, much before the Indian markets opened on Thursday, the leading Asian indices like Hang Seng and Nikkei were already deep in the red shedding more than 900 points each thereby dampening investor sentiments in India. The massive selling in the stock markets across the globe was primarily driven by the spike in the interest rates in the US, which increases the attractiveness of bonds for institutional investors compared to equities.
U.S bond yield
The 10-year yield in the U.S. is currently at a seven-year high of 3.20%, rising from 2.82% in late August.
This also led to the overnight Dow Jones Industrial Average (DJIA) losing over 3% on Wednesday to register its largest single day fall in eight months.
“Global stock market correction is putting pressure on the Indian market,” said Saravana Kumar, Chief Investment Officer, LIC Mutual Fund while adding that institutional investors will now closely watch the quarterly results befor taking a call on investment decisions.
A statement from Christine Lagarde, chief of the International Monetary Fund that stock market valuations are “extremely high” also acted as a catalyst for the Thursday’s sell-off. Interestingly, the IMF chief’s statement came close on the heels of US President Donald Trump’s criticism of the hawkish statements of the Federal Reserve, even going to the extent of calling the Fed “crazy.”
In India, dealers attributed the intra-day recovery to buying activity from domestic institutions like mutual funds and insurance companies even as overseas investors continue their selling spree having sold equities worth over ₹15,000 crore in the current month amidst the Indian rupee touching new lows.
The rupee hit a new all-time low at 74.48 a dollar in the morning trade but recouped losses later following suspected intervention by the RBI.
Rupee opened weaker at 74.31 a dollar compared to previous close of 74.22, but closed marginally higher at 74.12. Meanwhile, most market participants believe that Indian equities could lose further ground in the event of a fresh sell-off in the global arena.
“The only thing that can propel the oversold market to fall further would be a continued free fall in global equities,” said Rohit Srivastava, Fund Manager – PMS, Sharekhan. The market breadth was weak with more than 1,800 stocks losing ground on BSE, as against less than 800 gainers.
Interestingly, some of the broader and sectoral indices managed to limit their losses, which was in sharp contrast to some of the earlier sessions when such indices lost more than the benchmarks.
“The banking index as well as the midcap index clearly outperformed the benchmark as we did not see these two key indices breaching their recent lows,” said Sameet Chavan, chief analyst - technical and derivatives, Angel Broking.
“We construe this as a sign of strength and in case of some bounce back move, both these pockets would outperform the benchmark index by a fair margin,” added Mr. Chavan.