MUMBAI: Indian stocks plunged by 905 points at intra-day before closing 855 points lower on concerns of a global growth slowdown, continued decline in crude oil prices and the possibility of Greece not fully carrying spending cuts and enforcing economic reforms, which could hurt rest of the European Union.
The Sensex had its biggest fall since July 2009 by absolute numbers, breaching 27,000 points base to close at 26,987.46 points. All the dozen-odd sectoral indices on BSE closed in the red.
The immediate trigger was the crisis brewing in Europe. Any going back on reforms by Greece that it was expected to carry out under an IMF and European Union bailout was seen by markets as weakening Euro zone economy and also increasing pressure on the European Central Bank.
Global growth has been slow. Europe is reeling under slow growth and near stagflation, and the Euro is at a nine-year low against the dollar. Growth in China too has been slowing and the US is yet to pick up in earnest. The 10-year yield on US treasuries fell to just below 2 per cent, compared with levels around 2.9 per cent in mid-2014, as investors prefer bonds.
A sustained decline in crude oil prices also portend to a slowing global economy. Brent crude fell to around $52 per barrel, while New York crude oil price fell below $49.95 per barrel. It was around $115 per barrel in mid-2014. Estimates put today’s decline in stocks eroding `3 lakh crore of investor wealth. So, what’s the outlook for Indian stocks?
Fund managers say local investors over-reacted to selling by foreign investors, which then got exaggerated.
“Today’s move was an aberration, also because of the build up of long positions that were liquidated, and in some cases turned into short positions,’’ said U R Bhat, director at Dalton Capital. “The Indian economy is on a recovery path and falling oil prices are beneficial for us. Even within constraints the government is addressing fundamental issues.’’
Dipen Shah, head of research at Kotak Securities said in the near term a mixed set of quarterly numbers and global volatility are likely to restrict significant gains in markets. Yet, government’s action on getting reforms on track as well as potential decline in interest rates are likely triggers for a further re-rating in the medium-to-long term.
Third quarter results by Infosys on Friday could set a fresh tone for I-T stocks.