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



- Bajaj Auto

Top losing stocks on NSE were as follows:

- Vedanta

- Cairn India

- TATA Steel



- 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.
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