The Indian stock market fell about 1,700 points during the morning session on Wednesday, mirroring a global trend, before staging a recovery on the back of banking and pharmaceutical stocks. Stock markets around the world saw sharp declines from fear of trade barriers that could arise if U.S. President-elect Donald Trump keeps his campaign promises. Indian indices too fell in sync, catalysed by the demonetisation of Rs.500 and Rs.1,000 notes, before recovering by the end of Wednesday.
The victory of Donald Trump in the U.S. presidential polls led to a global sell off on concerns of possible trade barriers. The demonetisation of Rs.500 and Rs.1,000 notes in India also acted as a catalyst.
The benchmark Sensex lost 1,688.69 points during the pre-open session to touch a low of 25,902.45. Later in the day, it recovered partially to close at 27,252.53, down 338.61 points or 1.23 per cent. The broader Nifty lost 111.55 points or 1.31 per cent to close at 8,432.
Massive sell-off During the early morning massive sell-off in the Indian market was part of global negative sentiment with the Dow Jones futures shedding more than 600 points and the leading Asian indices like Hang Seng and Nikkei losing 494 points and 920 points, respectively.
“The U.S. presidential elections took the markets by surprise,” said Kamlesh Rao, chief executive officer, Kotak Securities. “The markets initially went into some tailspin as there have been previous concerns about possible trade barriers with other nations.”
“Volumes may see a dip in the near future especially from the retail investors. However, the HNI (high net worth individual) and institutional volumes may not be impacted significantly. The volumes will pick up over medium term to long term,” added Mr. Rao.
The technology sector bore the maximum brunt as Mr. Trump has already mentioned about his reservations on the H1-B visa programme under which Indian software engineers go to the U.S.
TCS was the worst performer in the Sensex pack, shedding 4.93 per cent to close at Rs.2,171.05. Infosys also lost 2.74 per cent to close at Rs.955.85.
Realty was another sector that lost ground owing to the government’s sudden crackdown on black money.
The BSE Realty index lost 10.23 per cent while sector heavyweights like Indiabulls Real Estate, DLF, HDIL and Oberoi Realty all losing in the range of 10-20 per cent each.
“The banning of large denomination currency may be a bit painful in the shorter term but definitely better for long-term in terms of better tax compliance, control on corruption as well as inflation,” said Motilal Oswal,chairman and managing director, Motilal Oswal Financial Services.
A total of 2,157 stocks lost ground on BSE, with only 610 gainers.
Banking stocks, however, managed to buck the trend with State Bank of India gaining 2.83 per cent while Kotak Mahindra Bank, Bank of Baroda and Punjab National Bank moving up over one per cent each.
Rupee recovers Despite a weak opening, the rupee ended stronger as compared to the dollar as the central bank intervened in the currency market. The rupee ended the day at 66.44 against the dollar as compared to its previous close of 66.42 per dollar. The rupee opened at 66.79 per dollar and went on to touch 66.93 before recovering.
“State-run banks were selling dollars on behalf of the central bank. The recovery of the stock market also helped the currency,” said a currency dealer.
Bonds also gained as demonetisation of currency is expected to cool inflationary pressures. The yield on the 10 year benchmark government bond ended 13 bps lower than its previous close, at 6.67 per cent.