China, GDP data spook markets

Sensex falls 2.23% to its lowest since August 2014

The turmoil in China continued to weigh on investor sentiment, with most global stocks falling about two per cent on Tuesday after China’s manufacturing sector activity contracted the most in three years, exacerbating worries over a slowdown in the world’s second-largest economy.

The benchmark BSE Sensex closed 586.65 points, or 2.23 per cent, lower at 25,696.44, the lowest close since August 11, 2014. The 50-share Nifty fell 185 points, or 2.33 per cent, to 7,785.85, a level last seen on October 17, 2014. In August, both the indices had slumped 6.5 per cent, their steepest monthly drop in about three years.

Data showed the purchasing managers’ index (PMI) for China’s manufacturing segment fell to 49.7 in August from 50 in July (a reading below 50 shows contraction). Spooked by the weak data, stocks across Asia and Europe fell about two per cent.

Lower-than-expected growth in India’s gross domestic product (GDP) for the June quarter also hurt investor sentiment. GDP growth slowed to seven per cent in the three months ended June from 7.5 per cent in the previous quarter, showed data released by the government after the market closed on Monday.

Owing to the global risk-off sentiment, foreign outflows from the Indian market continued. Foreign institutional investors (FIIs) sold shares worth Rs 675 crore, while domestic institutions were net buyers by Rs 682 crore on Tuesday, showed provisional data provided by exchanges. In August, foreign investors had pulled out a record Rs 16,700 crore from the Indian market.

“Volatility in the Chinese stock market is rattling FII sentiment. Domestic interest is still intact. Possibility of a rate cut is the only hope in the short run,” said Raamdeo Agrawal, chairman, Motilal Oswal AMC.

All but one (Sun Pharma) of the Sensex 30 components ended with losses on Tuesday. Banking and metal stocks led the decline, with Axis Bank and Hindalco losing five per cent each.

“Such high volatility will continue in the immediate short term. The equity market won’t stabilise till the time there is stability in the currency market. However, when the dust settles, India should do well, as the current fall in commodity prices will be beneficial in the long term,” said Harsha Upadhyaya, chief investment officer (equities), Kotak AMC.

Experts said the government would have to push ahead with its reforms agenda to spur growth, revive investor confidence and ensure India withstood the global turbulence triggered by fear over a slowdown in China and an interest rate increase by the US Federal Reserve.

Analysts have started downgrading the Indian market due to delay in a recovery in corporate earnings.