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Taper scare fells stocks

Mumbai, Nov. 21: Tapering fears resurfaced on the bourses today sparking a down wash in stocks after Wednesday’s release of the minutes of last month’s US Federal Reserve’s meeting revealed that the Coven had discussed the possibility of winding down the $85-billion-a-month bond-buying programme even before the US jobs market showed clear signs of improvement.

In Mumbai, the Sensex sank 406 points and wiped out combined shareholder wealth worth Rs 1.18 lakh crore.

The sudden change in sentiment came after the minutes of the Federal Open Market Committee meeting held on October 29-30 were released yesterday. The minutes quoted policy makers as saying that the US central bank would have to bring down its asset purchases if the economy improved as expected.

“During this general discussion of policy strategy and tactics, participants reviewed issues specific to the committee’s asset purchase programme. They generally expected that the data would prove consistent with the committee’s outlook for ongoing improvement in labour market conditions and would thus warrant trimming the pace of purchases in the coming months,” the minutes said.

Experts predicted that the Fed may start the tapering earlier than March, with some even going to the extent of saying that it may happen in December-January. The comments sent a shiver through the markets that roiled stocks and bonds even as the dollar gained against some of the global currencies.

There was more bad news in Asia as decelerating factory activity in China added pressure on stock prices. Stocks in the continent barring Japan, declined on tapering concerns. The Hang Seng Index, the Shanghai Composite Index, Korea’s Kospi and the Straits Times Index in Singapore closed lower. In Europe, Germany’s DAX and France’s CAC 40 were down, while the FTSE 100 gained.

Amid concerns that the Fed taper will prompt foreign investors in India’s stock markets to turn off the spigots on dollar inflows, the benchmark index plummeted to its lowest level in 11 weeks. Pressured by weak global cues, the Sensex opened lower at 20579.26 and remained under pressure throughout the trading session. The selling pressure intensified towards the last hour of trading, which saw the index hitting a session low of 20189.23.

It thereafter ended at 20229.05, a drop of 406.08 points, or 1.97 per cent. This was the biggest fall for the index since September 3, when the measure lost 652 points, or 3.45 per cent. The CNX Nifty index of the NSE closed at 5999.05, losing 123.85 points, or 2.02 per cent.

Experts said stock prices could remain under pressure in the coming days with investors’ attention focused on global developments.

Yet, there were a few optimists who reckoned that the markets might have exaggerated the tapering fears.

“The comments from the current chairman of the Fed as well as the incoming chairperson have been relatively dovish as compared to those of the other lawmakers in the last Fed policy meeting,” said Dipen Shah, head of private client group research at Kotak Securities.

Shah added that the introduction of greater fiscal reforms and effective implementation of policy reforms were the prerequisites that could sustain current valuations. Although potential liquidity withdrawal would impact developing markets, improved fundamentals may make foreign flows more sticky and lead to outperformance by India.

The FIIs, which have invested more than $17 billion in domestic equity this year, also appear to have lost interest in the past couple of trading sessions. Their net investments came down to $17 million on November 21 from nearly $156 million in the preceding session. Provisional data showed that foreign investors were net sellers to the extent of almost Rs 60 crore today.

Meanwhile, the rupee fell for the second day against the dollar today. It lost 36 paise to close at 62.93 as indications of an imminent tapering by the Federal Reserve saw the greenback gaining.

 
 
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