Factors Leading to Capital Market Volatility and Impact
Factors Leading to Capital Market Volatility and Impact
Question : Global markets witnessed a bloodbath as did the Indian Indices the Sensex and the Nifty. What factors led to volatility in the capital markets and how did the latter respond to this?
- The Indian market, like the international markets fell the most in 7 years on 24th August 2015
- The Sensex crashed more than 1,200 points positing a maximum decline of 2272 points (intra day) in the fiscal 2008
- The current fall of the Sensex by 1,624 points is the fourth largest in the history of the market
A. Factors Leading to Capital Market Volatility
The Fall of China
- Asian stocks fell to three year lows as the market meltdown in Chinese equities gained speed.
- Shanghai experienced a slump of more than 8% as China’s economy stalled creating problems worldwide for equity investors
China linked shares fell in early trade as well. The decline was by the following percentages for the different indices:
- Hong Kong: 3.91%
- Tokyo: 3.09%
- Seoul: 1.88%
- Sydney; 2.89%
- Weak manufacturing data from China was another trigger as was the allowance of the world’s largest pension fund (USD 547 billion) in China to be invested in volatile capital markets
- When PRC devalued its currency, there are questions whether the yuan may continue to tumble
Decline in Crude Oil Price
- Brent and tight crude hit new 6.5 year lows and investors continued to worry about weak demand as the economy slowed amidst global supply surplus
- Brent oil loss was around 44 cents at USD 45.02 per barrel after hitting a low of USD 45
- This marks the lowest value since 2009
Fall of the Rupee
- The rupee plummeted to a 2 year low and fell by 66 paise to trade below INR 66 against the dollar for the first time in 2 years
- Sustained capital outflows and a weakening US currency overseas added to the meltdown
Sharp Selling by Foreign Investors
- International investors took out INR 20000 crore from the Indian stock markets this month over concerns regarding China and the fall of the Indian rupee
Wall Street Losses
- US markets recorded their steepest intra day drop since 2011 on the basis of weak Chinese manufacturing data and a fall of the Chinese Stock Market
B. Impact on the Markets
- Both the Nifty and Sensex fell by almost 6 points
- BSE Sensex closed 1.624.51 points which is 5.94% down to 25,741.56.
- This marks the lowest value of the Sensex and its biggest fall since 2009
- Index fell at 25,624.72 at one point, the lowest intra day since August 2014
- 50 Share Nifty struggled and held on to 7,800 level declining by 490.95 points or around 5.92%
- It ended the day at 7809 marking the largest fall of the index since January 7th, 2009
- It was earlier at a low of 7769.40, the lowest since October 2014
- A total of 2480 stocks closed in the red even as 205 Indian stocks hit their year lows following sell offs. Around 314 stocks bucked the trend and remained in positive.
- S&P BSE Auto and S&P BSE Bankex were the massive sectoral losers
- While the former fell by -1351.40, the latter recorded a low of -1444.76
- Bank Nifty also declined by 1,200 points
Top losing stocks were are follows on the BSE:
- Vedanta
- TATA Steel
- ONGC
- GAIL
- Bajaj Auto
Top losing stocks on NSE were as follows:
- Vedanta
- Cairn India
- TATA Steel
- GAIL
- ONGC
- Overall, investor wealth fell by a massive INR 7 lakh crore breaching the INR 100 lakh crore mark and stood at INR 95,33,105 crore
- Rupee continued free fall down 82 paise
- RBI Governor sought to contain the volatility and indicated it may use forex reserves to curb currency volatility
- Chinese stock markets performed their worst since 2009 and wiped out gains in 2015
- Indian FM voiced convictions that market would settle down even as the Government sought to keep a leash on the volatility
Facts and Stats
- Net outflow by FPIs in equity was pegged at INR 1,943 crore during August 3rd to 21st while an investment of a net sum of INR 79 crore was made in the debt market at this time
- This equals a net outflow of INR 1,864 crore
- The Dow Jones industrial average closed down 530.94 points/3.12 %, to 16,459.75, the S&P 500 lost 64.84 points/3.19%t, to 1,970.89 and the Nasdaq Composite fell by 171.45 points/3.52% to 4,706.04.
