India's benchmark index crashed 1,000 points on Thursday, wiping out as much as Rs 4 lakh crore of investor wealth in minutes, confirming the worst fears that terrible volatility is here to stay.
The Dalal Street woke up on Thursday with a sense of severe foreboding as Asian stocks had lost a whopping 5 percent in the morning trade, tracking a blood bath in the US equities overnight.
While NSE Nifty index tested the 10,000 levels, BSE Sensex plunged 1,029 points to 33,732 intraday.
In the US, the Dow Jones Industrial Average dropped more than 800 points. The S&P500 lost 3.29 percent and the Nasdaq Composite index dived 4.08 percent.
The heavy selling in the US and Asian markets roiled confidence in India, even as the further fall of Indian rupee to 74.48 against the US dollar triggered the frenzied bear activity.
Major Asian indexes were also in the red. China's Shanghai Composite was down 4.74 percent, Japan's Nikkei 225 was down 4.37 percent, Hong Kong's Hang Seng dropped 3.95 percent and South Korea's Kospi index was down 3.63 percent.
Among Indian equities, IT stocks marked the worst losses, tracking a similar rout the technology shares faced in the Wall Street. While banks, realty and metal stocks also lost, media and oil and gas equities fared comparatively better.
Scores of market heavy weights were sold off in the morning, including SBI, Tata Steel, Infosys, Airtel, Yes Bank, Maruti Suzuki, HDFC, ICICI Bank, Wipro, Tata Motors, Coal India, L&T, and the like.
Worsening capital flight
Indian stock market has been witnessing heavy volatility over the past several weeks owing to factors such as the rupee's slide, rising oil prices, higher stock valuations, fears over corporate profitability and the worsening outlook on credit availability.
Earlier this week, some analysts had warned that the Sensex may drop below the psychological 30,000 levels before the turbulent year runs out. "The Indian market will continue to see heightened volatility in the current quarter because of a host of expected negative factors, with the Sensex likely to come down to 30,000 level by the year end," Kedia Stock and Commodity Research MD Vijay Kedia had said.
The heavy selling on Thursday can potentially spoil the prospects further. With sentiment roiling further, more capital is fleeing the markets. The foreign investors have withdrawn over Rs 9,300 crore form the Indian capital markets in the last four trading sessions according to the latest data. This is over and above the net outflow of Rs 21,000 crore in the month of September.
Another worrying sign for the market is the loss of steam in the mutual funds. Foreign investors have withdrawn over Rs 9,300 crore form the Indian capital markets in the last four trading sessions according to the latest data. This is over and above the net outflow of Rs 21,000 crore in the month of September.
Valuations and profits
Valuations have remained a fundamental question, and this concern will be exacerbated in the coming days, according to some analysts. Nomura said in a note a few days ago that Indian markets can see a further downside of up to 10 percent. The Nomura Advisory and Securities said valuations are still not attractive despite significant correction throughout September.
Saurabh Mukherjea, founder of Marcellus Investment Managers, said financial services stocks remained the "biggest pocket of overvaluation in the Indian market." He said further de-rating is likely to come in wholesale funded lenders, according to the Economic Times.
The earnings seasons is kicking off with technology bellwether TCS announcing results on Thursday, and this is going to be crucial for the markets. If there are signs that corporate profitability is coming under strains, the stock markets can witness a serious rout.