Sensex crash < 17K; recovers; Fears 2nd round of recession

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The Indian stock market on Friday plunged deep into red on worries over a possible second round of recession in the U.S. with the benchmark Sensex crashing by over 700 points to slip below 17,000 level.

The 30-share benchmark index Bombay Stock Exchange (BSE) fell to as low as 16,990.91 points in early afternoon trade on Friday, registering a fall of 702 points or about 4 per cent with all 30 Sensex constituents trading in the red. Almost Rs 2,50,000 crore was wiped off from the total investors’ wealth, measured in terms of combined value of all listed stocks, in just about three-and-a-half hours of trade.

Thought the markets recovered partially in late noon trades, but ended lower for the fourth consecutive day. In the past three trading sessions, the Sensex has lost nearly 620 points.

The 50 share index National Stock Exchange Nifty closed at 5,204, down 127 points and the Sensex ended at 17,305, down 387 points.

At the same time preference for safe-haven buying helped sovereign bond markets rally: India’s benchmark 10-year paper touched a high of 96.55 rupees, compared with 96.05 rupees at Thursday’s close. Sovereign Bonds are bonds issued by a national government in a foreign currency and is theoretically considered to be risk-free, as the government can employ different measures to guarantee repayment, e.g. increase taxes or print money.

Global Slump

BSE and NSE were not alone in registering this sharp crash. Markets across the region buckled under fears that the global economy could be facing a double-dip recession amid concerns over the U.S. economy. The market was also affected due to sharp fall in the U.S. market. Weak Asian and European markets also aided to the fall on Indian bourses.

The U.S. market recorded its worst fall since early 2009 on Thursday. The Dow Jones Industrial Average plunged 512.76 point or 4.31%, in its biggest single-day point loss since Dec. 1, 2008. Asian stock markets also plummeted by nearly 5 per cent wiping out hundreds of billions of dollars in market capitalization across the region.

Hong Kong’s Hang Seng Index plummeted 4.3% to 20,946.14, Japan’s Nikkei Stock Average fell 3.7% to 9,299.88, Taiwan’s Taiex plunged 5.6% to 7,853.13, Australia’s S&P/ASX 200 index went down 4% to 4,105.4 and South Korea’s Kospi was off 3.7% to 1,943.75. China’s Shanghai Composite was the best performer among the major markets in the region, finishing 2.2% lower at 2,626.42.

The Wall Street Journal (WSJ) quoted Toby Lawson, head of Asia Pacific futures, options and cash equities execution at brokerage Newedge saying, “A complete crisis of confidence has emerged in the market.”

Concerns for India

Investors are concerned over possible impact on Indian companies as a slowdown in world’s largest economy could affect exports. The companies would also have to borrow at high interest rates here, as foreign borrowings could be difficult.

In addition, rising food inflation and fears of hike in interest rates were other dampening factors.

However, many analysts are seeing today’s fall as a buying opportunity. “The uncertainty in the US and European markets will bring in more money in emerging markets like India as the valuations are cheap here. (It’s) not a panic situation, and rather it is a buying opportunity,” CNI Research’s CMD Kishor Ostwal said.

“This will create a value buying opportunity for the investors who were waiting for the fall,” he added.

Wall Street Journal quoted independent investment advisor S.P. Tulsian that “A sharp fall in crude prices also neutralizes some of the adversity for our market.”

Oil prices continued to retreat after diving more than 5% Thursday to their lowest level in six months on global demand concerns.



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