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Explained: Why Sensex fell 1,000 points today

Livemint logo Livemint 11-10-2018 Surajit Dasgupta

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New Delhi: Wednesday’s rebound on Dalal Street proved short-lived. The global rout, triggered by an overnight tumble on Wall Street, has reached Indian shores and the Sensex fell over 1,000 points today while the Nifty hit 10,138 at the day’s low. The bloodbath on Dalal Street follows a rout in global equity markets after Wall Street suffered its worst drubbing in eight months, erasing hundreds of billions of dollars of wealth. Though Sensex and Nifty are off the day’s lows, they are still in deep red. At 2:30 pm, the Sensex was down over 800 points while Nifty was near 10,200. Among the Sensex stocks, Infosys, TCS, Tata Steel, M&M and SBI were down between 3% and 5%. The broader markets were also under strong selling pressure, with BSE midcap index down 2 % and smallcap index nearly 1.5%.

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10 things to know about the Nifty, Sensex selloff today:

1) Overnight, on Wall Street, the S&P 500 ended with a loss of 3.29%, Nasdaq Composite 4.08% while the Dow shed 2.2% amid a rout in technology shares like Amazon, Apple and Facebook. It was the fifth straight loss for US markets, the longest slide since Donald Trump’s election win.

2) The US market tumble was so bad that it attracted the attention of US President Donald Trump, who pointed an accusing finger at the Federal Reserve for raising interest rates. “I really disagree with what the Fed is doing,” Trump said. “I think the Fed has gone crazy.”

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3) Hawkish commentary from policymakers of the Federal Reserve, which has hiked policy rates thrice so far this year, has sent US long-term bond yields to their highest in seven years. The surge made stocks look less attractive compared to bonds. The rise in US Treasury yields has been boosted by good US economic data that has reinforced expectations of multiple rate hikes over the next 12 months by the Federal Reserve.

4) A spike in US bond yields and a strengthening US dollar has led to a selloff in emerging markets, including India.

5) For example, foreigners have pulled out over $10 billion from Indian stock and bond markets so far this year.

6) The outflows from the Indian market, rising oil prices and the current account deficit, a tumbling rupee, and a rout in NBFC shares following multiple defaults by infrastructure financier IL&FS have erased all the gains the Sensex and Nifty had posted so far this year.

7) To add to the woes of the Indian stock markets, the rupee has been posting new lows against the dollar, approaching the 74.50 mark a dollar today.

8) The slide in the rupee comes despite many measures announced by the government to shore up the currency. The government had earlier increased import duty on many items while the RBI had allowed Indian companies to raise more money abroad and eased norms for foreign investment in local bonds, though those efforts haven’t stopped the rupee’s slide.

9) The risk of a widening current account deficit has left the rupee vulnerable to the rout in emerging markets amid surging oil prices, trade tensions and rising US interest rates. So far this year, the rupee is down over 14% against the US dollar and is seen sliding to 75 per dollar by year-end, according to the median view of 10 analysts surveyed by Bloomberg.

10) The rout in global equity markets has sent the price of oil lower. Brent for December settlement was $1.52 lower at $81.57 a barrel on the London-based ICE Futures Europe Exchange, after falling $1.91 on Wednesday. G Chokkalingam, founder of Equinomics Research and Advisory, said oil prices are down around 5% from recent highs and this will benefit Indian markets. He is optimistic about a recovery in the Indian markets after global markets settle down. The Indian markets had fallen sharply even before the current global equity rout and the oil price fall will provide a cushion to the Indian markets on the downside, he added.

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