Sensex sheds 400 points, Nifty ends below 6000 on Fed taper scare

Just when the markets were rallying, convinced that the US Fed will not taper its stimulus till next year, Federal Reserve chief Ben Bernanke dropped a bombshell, indicating that the withdrawal of easy money could happen this year itself. The result? A massive sell off in the stocks points.

The S&P BSE Sensex dropped nearly 400 points to close at 20262, down 1.81 percent while the Nifty fell below its key psychological level of 6,000 to close at 5999, down 2.02 percent.

Both the Sensex and Nifty today marked their biggest single-day drop since 3 September.

All 29 stocks in the Sensex and 50 Nifty stocks ended trade in the red.

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BSE capital goods index ended at the worst sectoral performer with losses of 2.3 percent

Sesa Sterlite, HDFC, NTPC were the top Sensex losers.

Technical analystSudarshan Sukhani believes there is a real possibility of a steeper decline if 5950 breaks on the Nifty. He expects market to remain choppy until then instead of making new highs.

“All in all, a sudden change in scenario maybe taking place. It is still too early to say that but that has become a strong possibility. With that in mind today’s market is no longer bullish for us,” he told CNBC-TV18.

Worried foreign investors have reduced their pace of purchases, raising concerns that momentum will continue to wane after the benchmark hit a record high on November 3.

The foreign institutional investors bought shares worth Rs 80.4 crore while domestic institutional investors were net sellers worth Rs 283.81 crore on Wednesday as per the provisional data from the National Stock Exchange.

The European markets have opened in the red tracking losses in other global equities. The FTSE 100 was down 0.52 per cent, CAC 40 fell 0.97 per cent and the DAX was 0.75 per cent lower.

Asian stocks also stumbled and the dollar stood tall after minutes from the U.S. Federal Reserve’s October meeting hints at stimulus tapering.

Policy makers “generally expected that the data would prove consistent with the committee’s outlook for ongoing improvement in labour market conditions and would thus warrant trimming the pace of purchases in coming months,” according to the record of the Federal Open Market Committee’s (FOMC) 29-30 October gathering, released on Wednesday in Washington.

The FOMC is considering how and when to taper asset purchases without triggering a rise in interest rates that could slow economic growth and erode gains in the labour market.

Observing the markets in recent months, however, one sees a renaissance of animal spirits. India’s markets stabilized first along with its Emerging market peers in September and then have recovered considerably. Other than a revival of risk sentiment externally, domestic investment may have bottomed at last and trade has marked a welcome pick-up. Financial market participants and regulators are relieved but not fully convinced by the turnaround, a recent Duetsche Bank note said.

Reuters breaking view columnist Andy Mukherjee has an explanation for the current market volatility .

Explaining the ‘schizophrenic’ market, Mukherjee says “India looks like two markets rather than one.. A small group of shares that foreigners like to own is powering ahead. The rest of the market is stuck in the doldrums, like the broader economy. Both global monetary conditions and local politics will play a role in ending this divergence. The fate of quantitative easing in the United States will matter, as will the outcome of the next general election in India.”