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3 reasons why the Sensex plunged 700 points today

Here are three reasons why the global markets, including India lost ground on Tuesday

Puneet Wadhwa  |  New Delhi 

Investor image via Shutterstock
Investor image via Shutterstock

tumbled yet again in trade on Tuesday with the S&P BSE Sensex slipping nearly 700 points to touch an intra-day low of 25,579 levels, while the CNX Nifty lost over 200 points to hit a low of 7,746 levels.

Buying at lower levels, however, helped the recover ground partially. The S&P BSE Sensex ended 2.2%, or 587 points, lower at 25,696 levels, while the CNX Nifty shed 185 points, or 2.3% to 7,785 levels.

Global markets, too, remained weak with the Nikkei slumping 4%, or 725 points to 18,165 levels. Shanghai Composite, Jakarta Composite Hang Seng and the Straits Times also shed 1% - 2.5% by close.

Mirroring the weak sentiment, European also opened weak on Tuesday with the DAX, CAC 40 and FTSE 100 slipping 2.5% - 3.1%.

"Markets began trading today on weak global cues as the US markets had closed lower yesterday amid continued uncertainty about China and the Fed. European markets also fell yesterday over continuing concerns on China and on uncertainty over what the US Fed will do in the next FOMC meeting. China's official PMI also indicated a contraction in activity, giving credence to fears of slowdown," said Sanjeev Zarbade, vice-president, Private Client Group (PCG) Research, Kotak Securities said in a note.

"Apart from global cues, Indian equities were buffeted by lower than expected GDP data and disappointing sales numbers of Maruti and M&M," he said.

Here are three reasons why the global markets, including India lost ground on Tuesday: Weak economic data: The likely trend for the markets was perhaps decided by weakness across Asian markets on Tuesday morning that dropped as manufacturing activity in China slowed to a three-year low in August, adding to concerns that the Chinese economy was slowing down at a faster pace than expected.

China’s official manufacturing purchasing managers’ index, or PMI, fell to 49.7 in August from 50 a month ago, falling short of market forecasts of 49.8. A reading above 50, according to experts, indicates an expansion in manufacturing activity compared with the previous month, while a reading below points to a contraction. CLICK HERE FOR THE STORY

ALSO READ: Market Extend Rout as Factory Data Adds to Economy Woes

In the Indian context, the manufacturing PMI fell to 52.3 points in August against six-month high of 52.7 in July, data showed on Tuesday. The data comes a day after the GDP data, released yesterday, that showed growth in the manufacturing sector slowing down to 7.2% in the first quarter of the current financial year, April-June, against 8.4% in the previous quarter, January-March.

Fears of rate hike by the US Federal Reserve (US Fed): Also impacting sentiment was the possible hike in interest rates by the US Fed later this month. Fed Vice Chairman Stanley Fischer on Saturday said US inflation would likely rebound as pressure from the dollar fades, allowing the US Fed to raise interest rates gradually. Analysts saw these comments as an indication that the US Fed would raise rates in September, instead of December.

FIIs remaining on the side-lines: With a withdrawal of around Rs 17,524 crore in August (upto 01-Sep-2015 as per NSDL data) and the biggest monthly outflow ever, foreign institutional investors (FIIs), the main drivers of the Indian stock markets, continue to be on the side-lines and remain in a wait-and-watch mode. Explains Raamdeo Agrawal, chairman, Motilal Oswal AMC: “Global volatility in Oil as well as Chinese stock market are rattling FII sentiments. Domestic interest is still intact. Possibility of rate cut is the only hope in the short run.”

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First Published: Tue, September 01 2015. 15:31 IST