North Korea missile spooks markets

Sensex, Nifty post biggest drop of 2017; VIX index jumps 7%

The Indian markets on Tuesday posted their biggest single-day drop of 2017 after North Korea fired a missile over northern Japan, fuelling worries of fresh tensions between Washington and Pyongyang. 

Most global markets also tumbled, while safe-haven assets such as gold rose as investors turned risk-averse.

The benchmark Sensex ended at 31,388.39, down 362.43 points, or 1.14 per cent, the biggest fall since November 21, 2016. The Nifty50 index closed at 9,796.05, down 116.75 points, or 1.18 per cent, the biggest fall since December 2, 2016. The India VIX index, a gauge for market volatility, jumped seven per cent, signalling further weakness in the market. The rupee weakened 11 paise against the greenback to end at 64.02.

Investor wealth got eroded by Rs 1.38 lakh crore amid heavy sell-off. Following weakness in stocks, the total market capitalisation of BSE-listed companies slumped by Rs 1,38,727 crore to Rs 1,29,77,705 crore.

Most Asian markets fell between 0.2 per cent and 1.2 per cent, while European markets fell over a per cent to a six-month low. “Stock markets in India and across the globe declined as escalating geopolitical tensions in the Korean peninsula weighed on market sentiment. Investors remained on edge after North Korea fired the ballistic missile,” said Karthikraj Lakshmanan, senior fund manager–equities, BNP Paribas Mutual Fund.

North Korea fired a missile that flew over Japan and landed in the Pacific Ocean about 1,180 km off the northern region of Hokkaido in a sharp escalation of tensions on the Korean peninsula. North Korea has conducted dozens of ballistic missile tests under Kim Jong-Un, but firing projectiles over mainland Japan is his first.

“The North Korean escalation has triggered a significant risk-off move. However... observers believe it won’t be enough to trigger a material reaction from the United States-South Korea axis. It wouldn’t be surprising, then, if investors take advantage of this geopolitical fear to buy the dips,” said Alessandro Balsotti, head of asset management at JCI Capital.

Foreign portfolio investors (FPIs) sold shares worth Rs 1,460 crore on Tuesday, while domestic investors provided counter buying support to the tune of Rs 1,391 crore. So far in August, FPIs have pulled out nearly Rs 14,000 crore from domestic stocks, while mutual funds have pumped in an equal amount. FII (foreign institutional investor) selling in August is most since November 2016. The benchmark Sensex is down 3.5 per cent this month, but, is still up 18 per cent on a year-to-date basis.

All Sensex components, with the exception of Wipro, ended with losses. NTPC and Sun Pharma fell the most at over two per cent each. There were over two declining stocks for every one advancing on the BSE. The heavy rains and flooding in Mumbai, the financial capital of India, also impacted investor sentiment, said market players.

“Concerns of heavy floods in the financial capital and selling by FPIs over the past one month ensured that risk appetite was down to a trickle,” said Anand James, chief market strategist, Geojit Financial Services.

Trading volumes in cash and derivatives segment on the BSE and the National Stock Exchange (NSE) didn’t see any significant drop even as business activity was disrupted in Mumbai due to heavy rainfall.

The small-cap and mid-cap indices shed up to 1.02 per cent. The BSE infrastructure index fell the most by falling 1.86 per cent, followed by power and consumer durables.

From the 30-share basket, 29 ended with losses led by NTPC, Sun Pharma and HDFC.

At the BSE, 1,784 stocks declined, while 789 advanced and 127 remained unchanged.

With inputs from agencies