Chinese 'chakkar' leaves Street reeling

A combination of negative news flow at home and rising global concerns on slowing growth in China, the world’s second-largest economy, spooked local markets on Thursday.

Volatility on the two leading exchanges spiked to a six-month high as the Sensex shed 405.24 points, or 2.30%, and the Nifty lost 136.5 points, or 2.54%, to end the day at 17196.47 and 5228.45 points, respectively.

India VIX, a gauge of investor fear and market risk, jumped 17.95% to 24.77, the highest daily surge since September 22, 2011, when it had increased 22.44%.

Deepak Jasani, head of retail research at HDFC Securities, blamed the sell-off on a cocktail of domestic developments,

particularly the furore following a news report which claimed the Comptroller and Auditor General had slammed the government over a loss of over Rs10.67 lakh crore to the exchequer due to improper coal auctions conducted between 2004 and 2009. Weak global sentiment on falling manufacturing and services growth in China and Europe compounded the woes, he said.

Investor sentiment was also hit by the rollback of railway fare hike and rising probability of interest rate cuts getting deferred. In fact, the weak opening in European markets post disappointing PMI data led to intensified selling in the afternoon.

Experts also attribute the fall to profit booking by foreign institutional investors (FIIs) and selling in index futures even though FIIs have been net buyers in the cash segment.

“There has been a build-up of shorts and liquidation of long positions by FIIs over the last couple of days. The negative news flow in the morning would have caused selling and they may have bought at lower levels in the cash market post the clarification from PMO on the CAG coal auction report,” said Karun Mutha, head of derivatives at HSBC Invest Securities.

The market breadth was quite negative with two of every three stocks listed on the BSE declining. All the 13 sectoral indices on the BSE ended in the red with realty (4.25% down), power (3.62%) and banking (3.41%) sectors losing the most.

Market participants, however, do not expect a major fall in the markets despite the local macro factors being unfavourable.

“Domestically, there are no positive triggers in the near term with fiscal deficit being high and interest rate cuts unlikely to happen soon. The market movements would continue to be determined by how global risk appetite pans out irrespective of local conditions. Till the time global liquidity conditions remain benign, the flows would continue to find their way into emerging markets like India, but markets could react downwards if flows dry up,” said Jasani.

FIIs have been buyers of equities worth Rs44,773 crore since the start of this calendar year and have been net sellers in just six sessions.

HSBC’s Mutha sees the markets sustaining the 5200 levels and trading in a broad range of 5200-5500 in the near term. “The sentiments are likely to become normal in the next few sessions and markets are likely to stabilise around these levels till the monetary policy in April provides further direction,” he said.