Investors across the world fled from riskier assets like stocks, as nervousness gripped financial markets on Wednesday on fears that a Greek exit from the euro zone would worsen the debt crisis facing other European nations like Spain and Italy.
The Bombay Stock Exchange (BSE) benchmark, Sensex, slumped 1.83 per cent or 298.16 points, to 16,030.09, its lowest close since January 9. The 50-stock Nifty index of the National Stock Exchange (NSE) lost 1.71 per cent, or 84.55 points, to 4,858.25.
The rupee touched an all-time low of 54.5225 against the dollar on Wednesday, amid global risk aversion.
The probability that Greece will leave the single currency rose markedly after political leaders in Athens failed to form a government yesterday, forcing another round of elections. Opinion polls show this is likely to be won by the leftist parties, opposed to the country’s bailout deal.
In response, the markets have moved to price in a Greek exit from the 17-member bloc, but are uncertain about the impact this will have on the rest of the region. Big investors have largely retreated to the sidelines, adding to the volatility.
“A Greek exit could risk the integrity of the euro zone, a scenario nobody fully understands,” said Nick Paulson-Ellis, country head, Espirito Santo Securities (India). “The trading range would suggest 15,000 for the Sensex as a worst case, but the trading range doesn’t reflect a Greek-exit scenario, which would trigger instability in the euro zone banking sector, rising risk premia and capital flight from risk assets.”
Among the major losers in the 30-stock Sensex, were Tata Motors, which lost 6.8 per cent to Rs 270.55 after Jaguar Land Rover sales fell 31 per cent in April from March, the steepest monthly loss since at least November 2009. Tata Steel, BHEL and HDFC declined over 3.5 per cent each.
“There has been a flight to safety towards the dollar. The Indian market and the rupee have fallen in tandem with other global markets,” said Saurabh Mukherjea, head of institutional equities, Ambit Capital.
Major Asian markets tumbled on Wednesday. Hong Kong’s Hang Seng plummeted 3.19 per cent, South Korea’s Kospi declined 3.08 per cent, China’s Shanghai Composite index lost 1.21 per cent and Japan’s Nikkei 225 gave up 1.12 per cent.
At 7 pm IST, major European markets like France and Germany had recouped most of their earlier losses as German Chancellor Angela Merkel’s comments about keeping Greece in the euro zone alleviated some fears.
Key US indices — Dow, S&P 500 and Nasdaq — were trading about 0.5 per cent higher as a better-than-estimated housing starts report bolstered confidence in the world’s largest economy.
|“Europe is turning into more of a train wreck and is overshadowing what is, at best, a feeble US recovery, just as China is missing a beat. These are hardly the conditions growth markets like India thrive in. Never has the macro backdrop been more vital to stock selection with resilience uppermost in mind”
Country head, Espirito Santo Securities (India)
|“Greece has plunged into a political chaos. Unless, the European Central Bank (ECB) intervenes with a big relief package, global equity markets are in for
huge choppiness in the days ahead. There is hope in the market that ECB will provide some stability”
Head of institutional equities, Ambit Capital
|“Renewed uncertainty regarding the global growth outlook, particularly fears around a Greek exit from the euro and worries about Spanish banks, mean further downside is possible for share markets over the next few months”
Head of investment strategy, AMP Capital