Shares plunged on Monday as global markets extended last week’s sharp declines on fears that the world could be heading for a China-led economic slowdown.

The benchmark Sensex fell the most in nearly seven years, losing 6 per cent or 1,625 points in a single session, to close at 25,742. This was the Sensex’ biggest ever fall in point terms. The Nifty ended at 7,809, down 5.92 per cent, or 491 points.

Both the benchmark indices registered their biggest single-day decline in percentage terms since January 7, 2009 when they had dropped 6.2-7.2 per cent each.

It all began with the rout in the Chinese stock markets, which fell about 8 per cent and left a trail of destruction. A downgrade of Saudi Arabia by credit rating agencies after Brent crude oil prices fell below $45/barrel, and the rupee losing over 80 paise against the dollar through the day added to the mayhem.

As a result the volatility index, India Vix, closed at 28.1300, up 64.35 per cent — its highest-ever jump — indicating that fear had gripped the bourses. “This accelerated fall in the markets is to be largely attributed to the noise globally. The S&P 500 has broken down from a tight 5 per cent range in the past six months to enter into a deeper medium term correction,” said Jimeet Modi, CEO of Samco Securities. “From a trader’s perspective, it is now a short-sellers’ market, where traders should look for shorting opportunities with strict stop losses. Today’s fall is the beginning of a larger corrective pattern which should normalise the bull market rally that began in August 2013.”

Investor wealth erodes Monday’s market turmoil destroyed over ₹7.04 lakh crore of investor wealth. Not surprising, as even in the 50-strong Nifty, 49 scrips fell. Foreign institutional investors sold net equities worth ₹5,275 crore, while domestic institutions were net buyers to the tune of ₹4,098 crore. Retail investors on the BSE bought net equities as well, up to ₹289 crore.

Other Asian markets did not fare any better.

Major Asian indices, including the Hang Seng, Nikkei, Kospi, and the Taiwan Index, lost 4-5 per cent. In the US, the Dow Jones Industrial Average plummeted more than 1,000 points soon after opening on Monday, but recovered subsequently.

Soothing nerves The steep fall pushed Indian policymakers to come out with statements reassuring the market players. “I have not the least doubt that this turbulence is transient and temporary in nature,” said Finance Minister Arun Jaitley. “The markets will settle down.”

RBI Governor Raghuram Rajan assured the financial markets that the central bank would not hesitate to use its considerable foreign exchange reserves to reduce volatility in the domestic currency, which fell 82 paise to a two-year low on Monday to close at 66.65 against the US dollar.

“Let me emphasise that we have $355 billion plus another $25 billion in forward positions, which are not required until next year. So, we have close to $380 billion in reserves, which we will use as and when the need arises,” he said at a banking summit. “Once market volatility settles down, India will emerge, once again, as the investment destination of choice.”

But traders like Samco’s Modi expect the markets to fall by another 3-4per cent in the short term, with steep corrections in over-heated small/mid-caps.

The direction of FII flows might stay negative as well. Ritesh Jain, Chief Investment Officer, Tata AMC, said: “We see that capital flows to India stalling till the global markets see signs of stability. We will have to wait for Federal Reserve’s rate hike to be priced in for that.”

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