Equity markets saw a bloodbath on Thursday sinking by 587 points as the Government dashed any hope of a stimulus — something being talked about for a fortnight — to revive the sagging economy. The bears latched on to the news to go for aggressive selling, pushing the index to six-month low. The rupee also continued with its freefall, and ended at 71.81 to a dollar, hitting eight-month low.
The market has been consolidating in the range of 11900-11100 (Nifty) for the past fortnight in the hope that stimulus package was on the way. It is bizarre that all these days no Government official cared to deny media reports about possible stimulus such as withdrawal of surcharge on FIP investment and removal of minimum alternate tax (MAT) as well as a package for revival of the auto sector.
Soon after Chief Economic Adviser Krishnamurthy Subramanian on Thursday said using taxpayers’ money to bail out companies going through a “sunset” phase will create moral hazards and such a step is an anathema to the market economy, the marked tanked, triggering another round of selling in banking, auto and metal stocks.
Power Secretary Subhash Chandra Garg also said low interest rates and availability of credit to private sector are better tools than a fiscal stimulus.
A weakening rupee, which hit its lowest level in eight months, and lacklustre global cues further weighed on investor sentiment, traders said. The 30-share BSE Sensex sank 587.44 points, or 1.59 per cent, to finish at 36,472.93. The broader NSE Nifty slumped 177.35 points, or 1.62 per cent, to 10,741.35. Both the key indices closed lower for the third straight session.
“Never has been in my 40-year experience in the market, did I see wealth destruction like the one we are seeing now,” says Ram Das Agrawal, founder of the Motilal Oswal, commenting on the one way fall in the market where hundreds of stocks have hit 52-week low.
While global slowdown has seen equity market plummeting across the world, but India has underperformed most of its Asian peers, mostly because there has not been policy incentives to deal with the crisis. Of course, the RBI has provided monetary stimulus by lowering interest rate, but in the absence of demand creation, credit off take itself has come down.
Yes Bank was the biggest laggard in the Sensex pack, plummeting 13.91 per cent, followed by Vedanta, Bajaj Finance and Tata Motors, which declined up to 7.76 per cent. ONGC, SBI, Hero MotoCorp, ICICI Bank, Tata Steel, HDFC twins and RIL also closed with losses.
Tech Mahindra, TCS, HUL and HCL Tech were the only gainers, spurting up to 1.57 per cent.
“Besides policy uncertainty on the domestic front, weak global cues, foreign fund flow, currency and oil price movement would further determine the trend of the market,” said Hemang Jani, Head - Advisory, Sharekhan by BNP Paribas.
Speaking at an event in Delhi, Subramanian stressed on the cyclical nature of a market economy.
“Since 1991 we are a market economy, and in a market economy there are sectors which go on sunrise and then go through sunset phase.
“If we basically expect the Government to use taxpayers’ money to intervene every time when there are some ‘sunsets’, then I think you introduce possible moral hazards from ‘too big to fail’ and as well as the possibility of a situation where profits are private and losses are socialised which is basically an anathema to way the market economy functions,” he said.
Speaking at the same event, Power Secretary Subhash Chandra Garg said reduction in interest rates and availability of credit to private sector are better tools than a fiscal stimulus.
Garg, who was Finance Secretary till last month, also said the first quarter GDP number are likely to be lower than the same period last fiscal.
Meanwhile, BSE realty index was the biggest sectoral loser, cracking 6.01 per cent, followed by metal, finance, oil and gas, bankex and energy.
IT index was the sole gainer, rising 0.30 per cent, buoyed by a weak rupee.
The broader BSE midcap and smallcap indices followed the benchmarks, closing up to 2.19 per cent lower.
Globally, markets were jittery ahead of comments from Federal Reserve Chair Jerome Powell at Jackson Hole, Wyoming, US.
Elsewhere in Asia, Shanghai Composite Index and Nikkei ended on a positive note, while Hang Seng and Kospi settled in the red.
Equities in Europe were trading lower in their respective early sessions.
The Indian rupee depreciated 33 paise to 71.88 against the US dollar intra-day.
Brent crude futures, the global oil benchmark, rose 0.65 per cent to USD 60.69 per barrel.