From Chinese crash to weak domestic cues: Here's why Sensex fell 538 points today

Domestic stocks fell like nine pins in the second trading session of the calendar year 2016, underpinned by external factors ranging from Chinese equity markets sell-off to Saudi Arabia-Iran geo-political stand-off that pummelled the benchmark Sensex below the crucial 26,000-mark to the day's low of 25,596.57, down 564 points.

 From Chinese crash to weak domestic cues: Heres why Sensex fell 538 points today


With local factors also coming into play after December manufacturing growth contracted to a 28-month low, investors resorted to panic selling that saw the 30-share Sensex end at 25,623.35, down 537.55 points, or 2 percent from previous close. Today's fall was the biggest since 22 September 2014. The 50-stock CNX Nifty also ended below the psychological 7,800-mark at 7,791.30, down 171.90 points, or 2.2 percent.

Here are the key points that contributed to the massive fall in Sensex and Nifty today:

Mayhem in Chinese markets: One of the primary reason that spooked the markets, including Indian equities, was the steep fall in Chinese equities. China's Hang Seng index plunged nearly 7 percent to close at 3,296.26 and Hang Seng dropped 2.7 percent. In fact the trading halt mechanism - dubbed a "circuit breaker" - came into force today, the first trading day of 2016. The drop was mainly on the back of poor data from official and private surveys of manufacturing in the world's second-largest economy.

Also, there were fears that the Chinese government's ban on shareholders holdings more than 5 percent in a company from selling shares in July will expire on Friday, triggering fears of a big sell-off by major shareholders.

Besides Chinese equities, Japan's Nikkei plunged 3.1 percent to end at 18,450.98. Key European gauges also felt the heat on the first trading session of 2016, with major indices tumbling over 2-3 percent in mid-day trades.

Saudi-Iran tension: Earlier in the day, crude oil prices jumped over 2 percent after tensions in the Middle East heightened after ties between Saudi Arabia and Iran deteriorated following Riyadh’s execution of a prominent Shi’ite Muslim cleric. Global oil benchmark Brent climbed over 2.5 percent and more than a dollar to a morning high of $38.50 per barrel on Monday, before easing back to $38.28. This seems to have sparked fears that if tensions linger in the region, the benefit India got from the soft oil prices may vanish.

December manufacturing PMI takes hit: Manufacturing activity in India contracted in December for the first time in more than two years, hurt by softening domestic demand. Nikkei's Manufacturing Purchasing Managers' Index, compiled by Markit, fell to a 28-month low of 49.1 in December from November's 50.3. Any reading above 50 is considered an expansion. The reason cited for the contraction is the Chennai floods that have hit the manufacturing output. This precisely means that the Indian economy is still vulnerable to even minor shocks like these.

Rupee takes plunge: In tandem with the fall in domestic equities, currency markets, too, witnessed a massive correction, probably on the back of selling by overseas investors. Intra-day, the rupee had declined 0.7 percent or 46 paise to a low of 66.60 a dollar before recovering some ground to be quoted at 66.54 against the dollar, down 0.61 percent or 40 paise from previous close.

All sectoral indices end in red: Other than key benchmark indices, today's market mayhem also enveloped other sectoral indices on the BSE. The BSE Telecom index was the biggest sectoral losers, tumbling 3.2 percent, while Auto, Bankex, Capital Goods, Realty and Industrials fell over 2 percent each as investors pruned their positions in the face of shaky world equity markets and absence of fresh positive triggers on the domestic front.

Sensex stocks hammered: Of the 30 scrips, 27 Sensex scrips ended in the red, signifying the broad-based sell-off. Among the laggards, Tata Motors led the fall, tumbling 6.1 percent to Rs 377.15, Bharti Airtel slumped 4.1 percent to Rs 326.60, Adani Ports dropped 3.7 percent to Rs 257.70, BHEL declined 3.4 percent to Rs 165.10 and HDFC eased 3.3 percent to Rs 1,216.35.

Bearishness to continue: Stock market analysts believe the undertone of the markets to remain bearish over the next few sessions, with most of them estimating the indices to move in a narrow range with a negative bias. "In next 4-5 days, Nifty may slip to 7,600 levels," said A K Prabhakar, Equity Research Desk at IDBI Capital Market Services.

Corporate earnings and Union Budget key triggers: All eyes will be on the upcoming December quarter corporate earnings season that would kick-off in a week's time. Although, brokerage houses are not expecting any major revival in earnings fortunes of blue-chip companies, margin expansion could be seen in select companies due to persisting weakness in global commodity prices. Also, the Union Budget in February can provide major impetus to markets, as markets would start building expectations, especially, in key areas of capital spending in infrastructure etc.

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Updated Date: Jan 04, 2016 17:09:19 IST