China factory data spooks markets
In its worst slump in four months, the Indian benchmark Sensex plummeted 537 points or over 2 per cent, hit by worries over the Chinese economic slowdown and growing geopolitical tensions in West Asia.
While the Sensex — BSE’s sensitive index — touched an intra-day low of 25,596.57, the broader Nifty 50 too, plunged over 2 per cent or 171.90 points to close at 7791.30. Markets across the globe were spooked by a 7 per cent fall in the Chinese equity market amid growing concern over weak factory output data.
After the New Year holiday, Monday’s opening of the domestic market largely depended on global cues rather than on domestic triggers and the sharp fall in China’s equity market dominated the proceedings right from opening of the day’s trading on the bourses.
Trading on both the BSE and the NSE opened weak, tracking Asian market cues, especially that of China. Other Asian benchmark indices also fell after China’s CSI 300 index — comprising large-capitalisation firms listed in Shanghai and Shenzhen —fell as much as 7.02 per cent, forcing suspension of trade for the day. China’s Shanghai composite index slumped 6.86 per cent, Japan’s Nikkei fell 3.06 per cent, Hong Kong’s Hang Seng dipped 2.68 per cent and South Korea’s Kospi was down 2.17 per cent. Later, even European market opened 1-3 per cent down and extended the losses towards the close of the Indian market.
US market futures were also down by over 1 per cent, leading to a continued slide in the Indian benchmark indices till the close. The German Dax was down 3.98 per cent, the French CAC was down 2.32 per cent and the UK’s FTSE was down 2.22 per cent around 7.30 IST.
The sharp fall in the emerging markets’ equity and currencies also led to a marked fall in the Indian rupee which fell to 66.61 against the greenback.
Pankaj Pandey, head of research, ICICI Securities, said, “One of the biggest fear for the global market is fear of a hard landing of China’s economy, which is also creating jitters in our markets.
Till stability returns in China, these fears will keep coming back and continue to cause volatility, but it will impact not only India but all markets globally.” Stock prices also fell on fears of oil prices rising following escalation of tension between Saudi Arabia and Iran in West Asia to new levels. Crude oil prices, which had risen last week, strengthened further on Monday on supply worries with Brent crude futures up 1.72 per cent to $37.92 per barrel and WTI crude futures up 0.94 per cent to $37.39 per barrel. There was more bad news even in terms of domestic macro data as the manufacturing PMI (purchasing managers’ index) slipped to 49.1 in December from 50.3 in November. However, some analysts believe that the weak December PMI was driven temporarily by the floods in Chennai and thus does not mean a sharp slowdown in domestic demand.
Dipen Shah, senior vice-president & head of private client group research, Kotak Securities said, “The markets’ sharply lower close was due to concerns over growth rate in China and it was the geopolitical situation in West Asia that hurt sentiments. The contraction in India’s December PMI manufacturing numbers also impacted sentiments.”
Foreign inflows, which had improved last week, looked vulnerable as foreign investors sold on Monday. Foreign portfolio investors (FPI) seemed more panicky and sold equities worth Rs 667.15 crore while domestic institutions were net sellers by Rs 222.79 crore. “Globally, there is a readjustment of liquidity happening and liquidity will be a bit challenging going forward,” said Pandey of ICICI Securities.
On Monday, the large cap stocks bore the brunt of the sell-off while the broader market weathered the shock better, with the BSE mid-cap index down by 1.20 per cent and the BSE small-cap index down by 1.11 per cent. The market breadth showed 1,608 stocks declining as compared to 1,277 stocks advancing while 100 stocks closed unchanged.