Markets at 2-month low

Benchmark indices posts sharpest weekly drop in 11 weeks

Indian equities posted their biggest weekly drop in 11 weeks, as global investors fled riskier assets on fears of a global slowdown, sparked by developments in China. Through the week, the benchmark BSE Sensex lost 700 points, or nearly three per cent, the worst weekly performance since June 7.

After falling as much as 476 points on Friday, the 30-share Sensex ended 242 points, or 0.88 per cent, lower at 27,366, its lowest close since June 19.

The National Stock Exchange Nifty ended 73 points, or 0.87 per cent, lower at 8,300 on Friday. Industry players said reports of relief on retrospective taxation to foreign investors helped the markets stage a partial recovery.

Major Asian markets fell about two per cent, while European markets were trading about 1.5 per cent lower on Friday. For equity markets, the latest jolt came from data on manufacturing in China, which fell to a six-and-a-half-year low in August, exacerbating worries of a slowdown in the world’s second-largest economy.

“There is huge uncertainty on how much China is going to devalue its currency. The entire emerging market currency basket has to fall due to the yuan devaluation. Till the time the headwind settles, Indian currency and markets will move in tandem with other emerging markets. The impact on India will be less compared to other markets due to positive macro fundamentals here,” said Piyush Garg, executive vice-president and chief investment officer, ICICI Securities.

On Friday, foreign investors net-sold shares worth Rs 2,340 crore, showed provisional data provided by exchanges. For the week, the foreign institutional investor selling tally stood at about Rs 3,500 crore, as the rupee weakened 1.3 per cent against the dollar. Metal and banking stocks were among the major losers during the week.

The fall in the Indian markets during the week was less compared to other emerging markets: the Indonesian market fell about five per cent, South Korea six per cent and China about 10 per cent. “Unlike other emerging markets, India stands out as relatively less vulnerable to a slowdown in China, as it is not part of the Asian supply chain yet; it is a domestic demand-driven economy and a net commodity importer,” Nomura said. It believes India is “among the least vulnerable”, as an impact on the country’s growth will be minimal and lower commodity prices will positively impact current account deficit and inflation, “creating room for another 25-basis-point rate cut in 2015”.