Markets in Bear Grip Sensex Tanks 541 Points

2% fall amid sell-off in Europe; most in two weeks as fears around China slowdown, US Fed rate increase resurface

Indian markets fell sharply on Tuesday, mirroring declines in the European and US futures market, as fears of the economic slowdown in China resurfaced on reports of a possibility of a default by a state-owned heavy engineering firm in China. Uncertainty about the timing of the US interest rate increase also weighed on riskier assets such as emerging market currencies and equities.

Despite a positive opening, the BSE Sensex closed 541.14 points, or 2.07 per cent, lower at 25,651.84. The Nifty 50 ended at 7,812, down 165 points, or 2.07 per cent, the most in two weeks. European stocks posted sharp falls, led by commodity and car companies with the pan-European Stoxx Europe 600 Index dropping over 2.2 per cent at 4.30 pm India time.

"Investors' growing unease about global and domestic growth may not bode well for the Indian market's valuation. The correction in global markets, post the FOMC meeting, suggests that investors may be finally focusing on economic and earnings growth rather than cheap money as the primary driver for markets," said Sanjeev Prasad, senior executive director and co-head, Kotak Institutional Equities.

The US Federal Reserve on Thursday left its policy rate unchanged, citing weak global growth and downward pressure on inflation. Global stocks have edged lower after the Fed meeting as experts believe the US central bank's decision delay the lift-off has created more uncertainty for investors.

"In our view, as investors in emerging markets (EMs), this (Fed's decision) isn't necessarily positive news. We are still left with the uncertainty that has been plaguing the market for some time. We know that the markets dislike uncertainty; so, we could also be left with continued volatility through year-end," Mark Mobius, chairman of the emerging markets group at Franklin Templeton Investments, said in a blog post recently.

The NSE's India VIX index, a volatility index, surged 12 per cent to 20.35 on Tuesday.

"The sharp increase in the VIX index signals that the market will continue to remain volatile. We continue to remain cautious as we believe this is a sell-on-the-rise market," said Siddarth Bhamre, head of derivatives, Angel Broking.

Foreign institutional investors (FIIs) sold shares worth more than Rs 1,000 crore on Tuesday, provisional data by exchanges showed. Following the Fed meeting, overseas investors had turned buyers for a few sessions. "Some foreign investors might have taken exposure to the Indian market following the Fed meeting. However, we saw sharp selling again on Tuesday. On an average, FIIs have been taking money out of India almost on a daily basis," said Bhamre.

Since August, FIIs have pulled out nearly $3 billion from the Indian markets, lowering their year to date investment tally to just $4.2 billion. The benchmark Sensex is down around seven per cent so far in 2015. The Indian market trades now at about 15 times its one-year forward earnings expectation. On Tuesday, commodity companies led the declines with Vendata, Hindalco and Coal India declining around six per cent each. Axis Bank, ICICI Bank and State Bank of India too fell about three per cent each. There were only four advancing stocks on both the indices, while two declining stock for every one advancing in the broader market.

Reference - http://www.business-standard.com/article/markets/markets-in-bear-grip-sensex-tanks-541-points-115092300051_1.html