Mumbai, Aug. 16: A day after the country celebrated its 60th year of Independence, shares nosedived worldwide amid growing fears of a global credit squeeze as a consequence of the sub-prime lending woes in the US.
The BSE sensex sank 642.70 points to close at 14358.21, or 4.28 per cent over the previous close — its second largest fall in absolute terms — even as investor wealth shrank by Rs 1,67,173 crore.
The crash came after a string of bad news. While retailer Wal-Mart posted a quarterly performance that was well below market estimates on Tuesday, more financial entities started to founder because of their credit exposures.
Australia’s Rams Home Loans Group failed to refinance $5 billion of short-term US loans as it could not obtain financing.
Speculation was also rife that Countrywide Financial, the largest mortgage lender in US, could face bankruptcy.
The reports spooked global indices sparking a meltdown in global stocks that swept through the Indian markets as well.
“A sharp selloff in the US and Asian markets on the back of increasing noises about the US sub-prime mortgage problems and the consequent impact it may have on global stock markets, in terms of liquidity flows, took a severe toll on the Indian stock market,” said Lalit Thakkar, director (research) at Angel Broking.
“Reports that an Australian and a Japanese fund have suffered substantial losses lent support to the theory that the sub-prime mortgage issue has a global impact and is not limited to the US alone. Further, the weak opening of European markets post noon dampened sentiments here,” Thakkar said.
The sensex opened lower at 14584.92 and remained subdued throughout the day as domestic investors and, more importantly, foreign insitutional investors (FIIs) refrained from buying. The index sank to an intra-day low of 14345.03 before some recovery at the close.
All the 30 sensex scrips registered sharp losses with heavyweights such as Reliance Industries (RIL), the State Bank of India, ICICI Bank and Bharti Airtel witnessing sharp losses. RIL, for instance, plunged 5 per cent, SBI by around 5.78 per cent, while ICICI fell by around 5 per cent. Bharti Airtel swooned by 6.63 per cent.
Although some stocks bucked the trend, they could do little to lift the market sentiment.
All the sectoral indices on the BSE ended in the red with the metal index leading the list of largest percentage losers as international metal prices softened further.
Bank stocks also took a hit, mirroring a trend seen in other sectors.
The picture in other markets was also dismal. South Korea’s Kospi plunged almost 7 per cent, Nikkei around 2 per cent while others such as the Philippines and Indonesia saw a 6 per cent fall in their key indices as well.
Similarly, Hong Kong’s Hang Seng index fell around 3.30 per cent, while Taiwan’s Taiex was down 4.56 per cent.
Market observers said FIIs had been selling this month though it hadn’t been as intense as in the other markets.
For instance, foreign funds are believed to have scooped out over $1 billion from the Taiwan markets today.
So far, foreign investors have been net sellers in the Indian markets to the extent of around $630 million.
Analysts have been explaining that hedge funds have been offloading their positions in emerging markets to cover the losses they have suffered on their sub-prime exposures.
Though the course of domestic indices will depend on how global markets behave, experts say the sensex could dip below the 14000-mark if more bad news trickles in.
However, some market experts like Dilip Davda reckon that the Indian markets could bounce back after a little more correction because of its inherent strength.