Mumbai, Jan. 27: Stocks tumbled and the Sensex sank 426 points, knocking off investor wealth worth Rs 1.52 lakh crore amid a global selloff in equities triggered by worries of another Fed taper on Wednesday and reports of a slowdown in China.
Investors were also apprehensive ahead of the third-quarter monetary policy review to be announced by the Reserve Bank of India (RBI) on Tuesday.
The fear is that the central bank will keep interest rates high, particularly after the Urjit Patel committee recommended last week that monetary policy should be guided by closely watching the consumer inflation gauge.
The benchmark index closed at 20707.45, a drop of 426.11 points, or 2.02 per cent, compared with Friday’s close. This was the biggest drop since the 651.47-point plunge on September 3 last year. Today’s closing also marks the weakest level for the index in three weeks.
Likewise, the 50-issue NSE Nifty tumbled 130.90 points, or 2.09 per cent, to settle at a one-month low of 6135.85.
Market circles said though it was a mix of global and local factors that led to the downfall in equity values, it was the disappointing news from overseas markets that played a larger role.
The US Federal Reserve is set to begin a two-day meeting tomorrow and it is widely expected to trim its bond purchase programme by another $10 billion to $65 billion a month. This is seen as a huge negative for emerging markets as it could dry up liquidity.
There have also been fresh worries emanating from China with recent data indicating that the world’s second-largest economy may be slowing down.
Both these factors have already impacted some of the emerging market currencies such as Argentina’s peso, the Turkish lira and the South African rand among others.
The rupee was also caught in this vortex and slipped past the 63-mark for the first time in 10 weeks and closed 44 paise lower at 63.10 to a dollar, further dampening sentiment on the stock markets.
There are, however, some experts who argue that the Indian currency is in a much better shape fundamentally than some of its emerging market peers as factors such as current account deficit (CAD), which could have pulled it down, is very much under control. They do not expect the rupee to come under pressure as it did last year when it sank to historic lows.
Governor Raghuram Rajan is expected to disclose the central bank’s stance on the Urjit Patel report tomorrow. There are apprehensions that the RBI may continue to adopt a hawkish tone with regard to inflation — and that’s one of the reasons why the stocks took a beating today.
All the 12 BSE sectoral indices ended in the red with the BSE Realty and the BSE Bankex heading the list.
While ICICI Bank and HDFC Bank led 27 losers in the Sensex, over 100 stocks on the BSE hit their 52-week lows as second-line stocks were badly clobbered.
Analysts say stocks will rebound tomorrow if the central bank sounds a dovish tone.