MUMBAI: It was a black Monday with global markets succumbing to pressure as Chinese stocks crashed 8.9 per cent, erasing all of their 2015 gains.
Not one to be left out, India’s benchmark indices registered their biggest single-day crash in percentage terms in six years. Last time the BSE and NSE fell 6.2-7.2 per cent each was on January 7, 2009. Calm in the world markets was shattered amid fears of China’s sluggish growth, potentially leading to an economic slowdown.
And now for the ugly part. Market pundits fear the worst is not over yet, with some even comparing it to the 1990s Asian meltdown. “Things are starting to look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable,” said Takako Masai, head, research, Shinsei Bank in Tokyo.
European stocks were 4-5 per cent in the red, Asian shares slumped to a three-year low, while Wall Street braced for a similar crash. “It is a China-driven macro panic. Volatility will persist until we see better data there or strong policy action through forceful monetary easing,” said Didier Duret, chief investment officer, ABN Amro.
Deutsche Bank termed the meltdown “very serious” as it will weaken growth. As it is, global markets have lost a whopping $5 trillion since China unexpectedly devalued the yuan on August 11. The market rout also brings back uncertainty over interest rate hike by the US Federal Reserve.
Meanwhile, China’s slowdown, coupled with Iran’s commitment to boost oil production was a drag on global crude oil prices, which hit a six-and-a-half-year low on Monday. However, this will be a positive fallout for India. Plunging oil price along with a depreciating rupee is expected to lower the country’s import bill, and thereby the current account deficit.
On the downside, the rupee slid to a fresh two-year low amid fears of foreign capital flight and could make imports costly and exports cheaper.
European stocks fell sharply, wiping hundreds of billions of euros off the region’s top share index. The pan-European FTSEurofirst 300 was down 2.8 per cent at 1,382.46 points, wiping about $264.04 billion off the index.
Back home, investors’ market wealth was eroded by a massive Rs 7 lakh crore. A wave of selling gripped foreign investors. “Selling pressure may continue on the stock-specific front, especially in the mid- and small-cap space,” said Jayant Manglik, president, Retail Distribution, Religare Securities Ltd.
RBI governor Raghuram Rajan and Finance Minister Arun Jaitley stepped in to soothe investors’ nerves. Rajan said the central bank could dig into the $350 billion forex reserves to contain rupee volatility and assured that the country was in a “sweet spot” with all its fundamentals — inflation and fiscal deficit.
“There is a change in trend and there would be some dead cat bounce also. Coming 2-3 days will be a bit challenging,” said Rohit Gadia, CEO, CapitalVia Global Research Ltd.