A meltdown in the global economy owing to a grim U.S. economic outlook, slowdown in China's manufacturing sector and a falling business in Europe sent the Bombay Stock Exchange sensitive index, Sensex, tumbling by 704 points or 4.13 per cent to 16361.15 on Thursday.
European markets
European markets fell more than 4 per cent (Germany's Dax index 4.38 per cent, France's CAC 40 index 4.56 per cent and U.K.'s FTSE-100 5 per cent). While Japan's Nikkei closed down 2.07 per cent, other Asian stock markets, Hong Kong's Hang Seng lost 4.85 per cent, China's Shanghai Composite Index lost 2.78 per cent and Singapore's Straits Times index closed down 2.66 per cent.
The 30-share BSE Sensex closed lower at 16361.15 as compared to its previous closing. The fall was led by realty stocks, which fell by 5.67 per cent, followed by metals (4.34 per cent), refineries (4.19 per cent), tech (4.10 per cent) and banks (3.98 per cent).
A broader National Stock Exchange's 50-share S&P CNX Nifty index lost 209.60 points or 4.08 per cent to 4923.65 as compared to its previous close of 5133.25.
The drop in U.S. market was not taken well by other global markets which plunged in the range of 3-4 per cent.
However, according to some commentators, India's Home Minister coming under 2G telecom controversy was not taken kindly by the domestic market and in such a scenario retail investors kept out from a risky market. “In the absence of retail investors, the volatility of this kind will always be there,” said Kishor P. Ostwal, CMD, CNI Research. Without any domestic support “we may react to global trends in the coming days, if global markets rise we will rise and vice versa,” Mr. Ostwal added.
The U.S. Fed in a statement on Wednesday said that significant risks remain in place for the global economy. The statement of the U.S. Fed while launching its ‘Operation Twist', a plan to lower borrowing costs by selling or not renewing short-term debt in favour of longer bonds, rattled the global markets. It also said that there were ‘significant downside risks' to the U.S. economy. This spooked the U.S. markets, which closed sharply lower on Wednesday.
Negative cues
As per indications, the U.S. markets were expected to open lower on Thursday. “Given the negative global cues emerging from the U.S. and Asian markets, the Indian markets opened lower and continued to lose ground. The sell-off was further exacerbated by the weak opening of the European markets. There was selling pressure across most sectors,” said Sanjeev Zarbade, Vice-President (Private Client Group Research), Kotak Securities.
Indicating that growth in the world's second-largest economy continued to slow down, the preliminary HSBC China Manufacturing Purchasing Managers Index fell to 49.4 in September from a final reading of 49.9 in August, said HSBC Holdings plc on Thursday.
This was considered by the markets as a pointer to the slowing economic activity in China due to weakening global demand for Chinese goods as well as the tightening measures in the economy adopted by China recently.
While Greece is struggling to avoid a default, Germany, the largest national economy in Europe, has reported a fall in business activity, the weakest pace in more than two years.
World stocks as measured by Morgan Stanley Composite Index (MSCI) were down more than 2.5 per cent, making for a more than 14 per cent year-to-date loss.
The emerging markets stock index was down 4.2 per cent for a nearly 22 per cent loss in 2011.
