You are here: Home » Markets » News
Business Standard

Sensex recoups over half its losses after plummeting 1,274 points

Volatility in global markets roils Dalal Street

Pavan Burugula  |  Mumbai 

stock market
Stock brokers reacts as they watch the share prices of BSE sensex in Mumbai. Photo: Kamlesh Pednekar

The plunged as much as 1,274 points on Tuesday after a rout in the US and other major The index, however, managed to recoup more than half its losses as investors resorted to value buying following a sharp three-day correction.

The Sensex, after dropping to a low of 33,483, closed 561 points, or 1.6 per cent, lower at 34,196. Similarly, the touched a low of 10,276 before closing at 10,498, down 168 points, or 1.6 per cent, from the previous close.

In intra-day terms, this was the biggest fall for both the indices since November 9, 2016, when the had dropped 1,689 points and the 541 points following the announcement of demonetisation.

The fall was much steeper in the broader markets, with the MidCap and closing 1.7 per cent and 2.2 per cent lower, respectively. The overall market breadth also remained negative, with shares of 530 companies advancing against 2,223 declines.

ALSO READ: 4 reasons why Sensex lost 561 points on Tuesday

Sensex

(FPIs) sold shares worth a net Rs 23.26 billion, while domestic institutions purchased fresh equities to the tune of Rs 17 billion, the provisional data from stock exchanges showed.

The India VIX index rose 24.7 per cent, with the volatility gauge climbing to 20 for the first time in 15 months. The sharp spike in the index signals more turbulence ahead, in contrast to 2017, which was one of the least volatile years for equities.

The Indian have closed in the red for six straight sessions, losing 5.8 per cent and wiping off investor wealth worth Rs 8.75 trillion. Market participants say a downturn in US equities, along with rising bond yields, has triggered the current correction. The S&P 500 fell 6 per cent in the last three sessions. Even witnessed similar selling, with like Hong Kong and Japan witnessing steeper falls. The current phase of correction comes after a sharp run-up in equities last year.

A correction, they say, was on the cards as valuations had soared above long-term averages.


ALSO READ: Budget 2018: Don't blame LTCG tax for Sensex slippage, says Finance secy

The intensity of selling has taken pundits by surprise. Volatility is expected to continue as investors readjust risks in their portfolios after a spike in the 10-year US Treasury note.

“The current sell-off in the does not seem like a healthy correction. The problem with the market seems to be exceptionally high valuations, low earnings growth, and euphoric investor sentiment. A steady reduction in US long-term bond yields along with a more stable dollar would be key for the to stablise in the near term,” said Jonathan Garner, chief Asia & EM Equity Strategist,

On the domestic front, a recovery in the earnings along with fiscal deficit numbers will play a key role in deciding the market direction. The Centre has set a fiscal deficit target of 3.3 per cent for 2018-19, higher than the market expectation of 3.2 per cent.

ALSO READ: Why markets are plunging? Blame poor corporate earnings, high bond yields

India Inc’s corporate earnings have remained muted for the past eight quarters due to several policy disruptions like the introduction of the goods and services tax (GST). However, lackluster earnings did not deter the market rally, which happened primarily on account of a liquidity gush.

“The could continue to remain volatile in the near to medium term as there are headwinds, such as poor earnings, climbing prices of global crude oil, and the US Fed tightening its fiscal stance. The slightly better earnings for the December quarter were more on account of a low base. Hence, the still seem a few quarters away from a full-fledged earnings recovery. The rally in crude oil prices could affect inflation and widen fiscal deficit,” said G Chokkalingam, founder, Equinomics Advisory.

Also, valuations in the mid- and small-cap space continue to be a cause for concern. These fears have caused the broader to correct more sharply than the benchmark indices. The MidCap index has lost 9 per cent from its peak last week, while the SmallCap is down 13 per cent from its peak.

First Published: Wed, February 07 2018. 01:20 IST
RECOMMENDED FOR YOU