An 8.5-per cent slump in China’s Shanghai Composite on Monday that wiped out all the gains it made this year triggered crashes in equity and commodity markets across Asia, Europe and the U.S. Tracking the Chinese plunge, the benchmark BSE 30-share Sensitive Index (Sensex) recorded its steepest single-day crash since 2009 of more than 1,700 points in intra-day trade and the rupee lost 82 paise against the U.S. dollar.
The rupee closed at a fresh two-year low of 66.65 per dollar, down from its previous close of 65.83. It has lost 202 paise, or 3.17 per cent after China’s first devaluation of the yuan on August 11. The Sensex closed with a loss of 1624.51 points or 5.94 per cent at 25,741.56. The third sharpest fall in percentage terms, it eroded Rs. 7,00,000 crore from investor wealth.
“Turmoil in currency market has been long-coming and China is only the last step in it… We live in an increasingly uncertain world... Seven years after the financial crisis, advanced economies are still growing slowly, while a number of emerging economies are experiencing difficulty… the Indian economy is full of possibilities, even as much of the world is mired in pessimism,” RBI Governor Raghuram Rajan said.
Broader indices took sharper hits — the BSE 100 lost 6.28 per cent and the BSE 200 tumbled 6.51 per cent. Mid-cap and small cap stocks lost even more — 7.68 per cent and 8.81 per cent respectively.
Foreign institutional investors have pulled out more than Rs. 650 crore from the equity markets during the month of August (up till Monday) against the net inflows of nearly Rs. 840 crore in July.
Worst crash since 2009
With the volatility in the markets rising sharply, Union Finance Minister Arun Jaitley tried to allay fears. Indian financial markets are in turmoil as a result of the three external factors – the situation in Europe, the uncertainty surrounding the U.S. Fed rate hike and China’s yuan devaluation – and would soon settle down, Mr. Jaitley told reporters in Delhi.
“These are transient and temporary effects…the government and the Reserve Bank of India are watching the situation closely.”
“The sharp fall on Monday was led by a global sell-off triggered by concerns over the slowdown in the Chinese economy and fears of a currency war led by the yuan devaluation,” said Dinesh Thakkar, Chairman and Managing Director, Angel Broking.
He said that the fall in the benchmark indices in India was accentuated further by panic selling and margin calls.
“We expect the markets to remain volatile in the coming few trading sessions led by negative global cues and the upcoming Futures & Options (F&O) expiry,” he added. “The Sensex had its biggest fall in seven years, triggering worries that the near term outlook is looking weak for the financial markets,” said Raghu Kumar, Co-founder, RKSV, a leading broking firm. However, he said that compared to other emerging markets, India is well off from a macro-economic point of view. “From a relative point of view, India’s situation is not as grave as it might appear.”
