Markets await U.S. Federal Reserve meeting next Tuesday for a trigger
The Bombay Stock Exchange sensitive index, Sensex, plunged by 387.31 points or 2.19 per cent, a nearly 14-month low, fearing fresh recession led by world's largest economy the U.S. and Europe.
During intra-day trading, the Sensex lost over 702 points to slip below the 17000-mark to hit a low of 16990.91, a level last seen on May 14 last year.
All the 13 sectoral indices recorded major losses with stocks of IT, metals, realty, financials, oil and gas and capital goods leading the fall. Heavy sell-off was seen across the board. The later part of the day witnessed the markets bouncing back by around 100 points from the day's low and closed in the negative territory.
The developments in the U.S. regarding its deepening debt problems in the last few weeks were sending negative message to the global financial markets.
In the Asian markets, Hong Kong's Hang Seng index sank 4.29 per cent while Japan's Nikkei ended 3.72 per cent lower on Friday. All the European markets were also trading in the red.
However, while writing this report, U.S. stock index futures rallied more than 1 per cent after a report showed job growth accelerated more than expected in July as private employers stepped up hiring. S&P 500 futures rose 12.2 points, as per the reports.
“The Indian markets have corrected sharply today [Friday],” said Dipen Shah, Senior Vice-President (Private Client Group Research), Kotak Securities. This is largely in line with the fall in the US and European markets. The fall in U.S. markets on Thursday was the worst since December 2008. The U.S. indices are down about 10 per cent in the past ten days. For the week, Indian markets are down by about 5 per cent largely on global concerns.
Market participants were expecting that the bourses could remain weak in the short-term and would move in line with the global markets and fund flows, which could be negative for all emerging markets.
The immediate trigger for the markets could be the U.S. Federal Reserve meeting on Tuesday. It will be watched carefully to get any message on what would be the thinking of the U.S. Fed about further stimulus for its economy. Markets are expecting some comments about further stimulus looking at the recent spate of weak economic data from the U.S. In case there is an indication of a further stimulus from the Fed, it could be taken positively by the markets globally.
“We believe that it could be a short-term positive for the markets but from a longer term perspective, it will be negative from the U.S. economy's perspective. For India also, it will be negative in the long-term because commodity prices may once again shoot up,” said Mr. Shah.
The broad-based National Stock Exchange's 50-share index Nifty nosedived by 120.55 points, or 2.26 per cent to 5211.25.
It had dipped below the psychosocial 5200-level to trade at 5116.45 at the outset of the session. “The Nifty has itself found a new low of 5116 and will remain a crucial support from here on,” said Alex Mathews, Research Head, Geojit BNP Paribas. He said that investors remained extremely diffident about corporate earnings as running quarter's results were not encouraging. High interest rates will dent corporate earnings going forward, especially for IT companies, which earn a good portion of the revenue from exports to the U.S. and Europe, with growth slowing down in terms of sales.
On the sectoral front, IT, technology, realty, power and metal were the major laggards leaving no one to gain. IT sector index suffered the most, losing 3.93 per cent to 5459.02.
The realty sector index closed 3.13 per cent down at 1888.97 followed by metal that tumbled by 2.44 per cent to 13061.95, while the Bankex shed 1.67 per cent to 11833.22.
Metals, especially base metals, slipped considerably as economies around the globe has shown slump in manufacturing. So the demand for industrial metals will happen only if economies show signs of recovery.
Automobile stocks continued to slip on comments from Finance Minister that the government might look at charging increased price for diesel for commercial use.
Crude is trading around $86 a barrel and this brought buying in PSU oil marketing companies.