1,665 Points in Four Days: Three Reasons Why Sensex Crashed

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February 11, 2016

MUMBAI, INDIA – The Sensex posted its fourth straight triple-digit loss on Thursday, crashing below the key 23,000 levels. The Nifty blue-chip index ended at a 21-month low below 7,000.

February 11, 2016

MUMBAI, INDIA – The Sensex posted its fourth straight triple-digit loss on Thursday, crashing below the key 23,000 levels. The Nifty blue-chip index ended at a 21-month low below 7,000.

The four-day carnage has set back shareholder's wealth by nearly Rs 7 lakh crore. The National Stock Exchange's volatility index, also called the fear gauze, surged 16 per cent to a 21-month high today, suggesting heightened panic among investors. Sentiments were also weighed down by continued decline in the rupee, which slumped to a 29-month low of 68.32 per dollar.

Here are three reasons for the market slump

  1. Crack in Global Markets: The rout in domestic shares has been linked to the ongoing global selloff. Asian markets closed down for a fourth straight day today, while in Europe, indices were headed for their lowest close since 2013. Dow Jones futures indicating a gap down start for Wall Street on Thursday. Traders dumped stocks across the globe on Federal Reserve Chair Janet Yellen's overnight comments that the US central bank is unlikely to reverse its plan of raising interest rates further this year.
  1. Banking Stocks Bleed: In India, investors are worried about the sharp erosion in profitability of state-run banks. State Bank of India, the country's top lender by assets, slumped 3 per cent after it reported a 62 per cent fall in quarterly profit because of higher bad loans. Shares of smaller state-run lenders that have reported huge losses because of higher bad loans have suffered 10-20 per cent losses in the last four sessions.
  1. Liquidity Dries Up: Foreign institutional investors (FIIs) have been dumping domestic shares because of increased global volatility. After pulling out over Rs 11,000 crore from domestic markets last month, FIIs have sold a net Rs 1,400 crore of domestic shares over the last three sessions. Meanwhile, inflows from domestic institutional investors are also drying up. Inflows into domestic equity mutual funds in January 2016 fell to the lowest since April 2014.

Indian markets are 23.5 per cent off the all-time highs hit in March 2015. The carnage in stock markets has wiped out gains since Prime Minister Narendra Modi won power in May 2014 and increased headaches for Finance Minister Arun Jaitley ahead of the annual budget.

The Sensex closed 807 points or 3.4 per cent lower today, while the Nifty plunged 239 points to end at 6,976.


Courtesy: NDTV Profit

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