Mumbai, July 27: Stocks swooned on Friday with the bellwether sensex plunging by 3.43 per cent, or over 540 points, to 15,234.57 — its fifth sharpest fall in history — as a tidal wave of selloffs washed over global markets.
The stomach-churning lurch began in the US on Thursday when the Dow Jones Industrial Average plummeted by over 300 points as worries over the country’s sub-prime mortgage market resurfaced. This, coupled with disappointing home sales report, fuelled concerns over a slowdown in the economy there. The sub-prime mortgage is a market where a lender provides money to borrowers who do not get loans from mainstream lenders.
On Friday, the US commerce department put out robust numbers with GDP growth estimated at an annualised 3.4 per cent — the highest since the 4.8 per cent in the first quarter of 2006 — even as core inflation eased to 1.4 per cent.
But, the damage was already done: Asian markets slithered in the morning and sentiment sagged throughout the day. In the end, Hang Seng slumped 641.28 points, Nikkei plunged 418.28 points, Kospi weakened by 80.32 points and Taiwan dipped 404.14 points.
India was no exception. The sensex opened over 288 points adrift at 15,487.76. Brokers said global factors presented a good opportunity to investors to unwind their positions in a market that badly needed a correction.
“This was on the horizon. What better day to happen than when there is a fall in the US and Asian markets,” said Arun Kejriwal of Kejriwal Research and Investment Services. Kejriwal added that valuations in the markets had run ahead of time and there were some unwarranted bullishness that needed to be corrected.
The fall was accentuated towards noon as across-the-board sales saw the benchmark index plummeting by 616 points to an intra-day low of 15159.68. Though there was some recovery from these depths, this could not be sustained as selling re-emerged.
All the sectoral indices on the BSE ended in the red. The maximum damage was in those sectors that had seen a substantial run-up in values in the recent past. These included metals, construction and capital goods stocks. The BSE metal index was the largest loser in percentage terms with a loss of 5.26 per cent, followed by the BSE realty index which declined 5.25 per cent.
Analysts say the developments over the weekend will hold the key to how the markets fare on Monday. The SBI and RIL are set to release their quarterly results on Saturday, followed by HUL on Sunday.
“Both results will have a bearing on the markets. If they are above expectations, the bourses could open gap-up on Monday. The opening will also depend on how the US markets close on Friday,” an analyst with a foreign brokerage said.