An extended stock market rout in China sent shivers through all of Asia on Wednesday. India too caught the fever and benchmark indices fell over 1.7 per cent.
The Sensex lost over 480 points to close at 27,687.72, while the Nifty lost 147 points to end at 8,363.05. The rupee too bore the brunt of the equity market sell-off, weakening 13 paise to close at 63.59 to the dollar. Other major Asian markets were hit much worse, led by the Shanghai Composite Index, which fell nearly six per cent in a single session. The benchmark indices in Japan, South Korea, Hong Kong, Singapore and Malaysia all ended in the red.
The US Dow index tumbled 1.2 per cent at 9-30 p.m. (India time) though European markets closed in the green, in the hope of solution to the Greek crisis.
Meanwhile, the NYSE Group, which includes the New York Stock Exchange, has temporarily suspended trading in all securities due to technical difficulties, the unit of Intercontinental Exchange Inc, said on Wednesday.
The Chinese stock markets have been facing a three-week-long selloff, falling over 30 per cent since mid-June. The worries seem to be essentially arising from a spectacular run up in Chinese stocks when investors took loans to buy shares. Margin financing, as this is called, stands at over $350 billion in China today, according to some reports.
As stock prices continue to fall, investors are selling shares to meet margin requirements, which loops back into the stock selling frenzy.
The Chinese government has tried to step in and buy stocks, where investors are selling, or suspend trade altogether in almost a third of the listed companies in China. Neither effort has stemmed the downslide though, leading to speculation of a stock market bubble burst spilling across the border.
Collateral damage “Some of the global investor panic will spread to India,” says Nitin Jain, CEO, Global Asset and Wealth Management, Edelweiss Financial Services. “You must keep in mind that global asset allocations happen around themes – either emerging markets, or BRICS. India will feel some collateral damage because of this.” Also, he added, after Sunday’s referendum, “the possibility of a Greek exit from the Euro Zone appears to be a high-probability event, which wasn’t the case about 15 days ago.”
However, China seems to have consigned the Greece debt crisis to a sideshow now. Commodity prices have slumped further globally.
Back home in India, the metals index took the worst hit on Wednesday, falling nearly four per cent, closely followed by automobile stocks. The broader markets also ended in the red, with the BSE Midcap index losing 1.3 per cent and the SmallCap index shedding 1.28 per cent. Foreign investors sold net equities worth ₹354.32 crore while domestic institutional investors’ net sales amounted to ₹346.31 crore. Retail investors bucked the trend, buying net equities of nearly ₹52 crore on the BSE. Volatility measure India Vix gained over nine per cent to touch 17.7900.