Chinese slump triggers freefall; Sensex sheds over 600 points

Heavy sell-off across all the sectors led by global fall pushed the Sensex below the psychological 15,000 mark and the Nifty below the 4,400 level. It was the biggest fall seen by the markets in the recent times. Commodities, rate sensitives and infrastructure related stocks saw a big crack today on the back of institutional selling; respective indices fell 3-7.5%.

The session started with big gap down of 80 points on the Nifty due to weak Asian cues and as the day proceeded the Shanghai fell 5.8%, to 2,870.63. It was the biggest one-day fall seen by Chinese Index since November 2008. The main reasons behind this slump were the fall in base metals as well as 10th straight month of decline in FDI (foreign direct investment). FDI in China fell 35.7% in July.

In the base metals, LME (London Metal Exchange) Nickel was down 5% and Aluminium fell 2%. Zinc and Copper lost 3% each. Crude was also down over 2% below USD 66 a barrel. Among the other Asian markets, Hang Seng tanked 3.6%; Straits Times down 3.25% and Taiwan Weighted down 1.95%. Kospi fell 2.85%, as South Korean won was at one-month low, down 1% versus USD. Japan's Nikkei fell 3.1%; the biggest one-day fall in nearly five months.

At the time of closing of Indian equities, European markets were down 1.8-2.4% and US index futures fell nearly 2%, which indicated that the US markets would see sharp gap down opening in the evening. The USD Dollar Index was up 0.5% at 79.2. US Empire State Manufacturing Survey and US Housing Market Index numbers will be announced today.

All these negative factors hammered the Indian equities quite badly. The 30-share BSE Sensex shed 626.71 points or fell 4.07%, to settle at 14,784.92 and the 50-share NSE Nifty tumbled 4.20% or 192.15 points, to 4387.90. The broader indices followed the same trend and lost 3-3.9%. Not a single stock on the Sensex and the Nifty ended in the green.

Andrew Holland, CEO–Institutional Equities and Equities Proprietary Trading, Ambit Capital, said he was concerned about large global liquidity flows and said the markets would fall 20–25% if liquidity dried up. He added that otherwise too, there may be a correction of 10–15% from the current levels. Holland said that markets would contract very quickly if China continues to fall. With regard to Indian markets, he sees short-term concerns regarding monsoons and fiscal deficit.