After the US and European markets, turmoil found its way into Asian markets . The fall in US markets on Thursday was the worst since December 2008. The Dow Jones Industrial Average fell by over 512 points, or 4.31 per cent, to close at 11,383.68. The S&P 500 shredded over 60 points, down 4.78 per cent, to close at 1,200.07. The European markets were down by 1-3 per cent on an average.
But the Asian markets, though not believed to be on as shaky ground as their Western peers, reacted more sharply. The Nikkei 225, Taiwan Stock Exchange Index (TWSE) and Hang Seng lost 3.72, 5.58 and 4.29 per cent respectively. Other markets tanked more than 2 per cent, including India. The BSE Sensex lost 702.27 per cent, or 3.97 per cent, to touch 16990.91 before recovering towards the day's close. At close, the index lost 387.31 point, or 2.19 per cent. In the last ten trading days, the US indices have gone down by about 10 per cent, and the BSE Sensex has lost 7.57 per cent.
According to DK Aggarwal, Chairman and Managing Director of Sanlam Investments & Advisors (India) Limited, the rout in global equity markets can be attributed to fears of slowdown in global growth, recession and possibility of a downgrade of US rating and the spread of the European debt contagion from Greece, Ireland and Portugal to Italy and Spain. "The high liquidity in the capital and commodity markets because of fiscal and monetary stimulus seems to be moving in reverse direction," says Aggarwal. "Also the earlier perceived economic growth is actually not happening and is resulting in lower commodity demand," he adds.
Global factors are ingredients in domestic woes. While corporate earnings are already exhibiting the dents of higher input costs and interest rates, inflation-combating by the Reserve Bank of India is taking a toll on economic growth for now. "Things are getting worse from better now," says Sanlam's Aggarwal.
And going forward the Indian indices will continue to be on a see-saw, thanks to inflation which seems to be untamable for now and fears of another rate hike from the banking regulator. "The markets could remain weak in short term and will move in line with the global markets and fund flows, which could be negative for all emerging markets," says Dipen Shah, Senior Vice President & Head (Private Client Group Research), Kotak Securities.
The markets' next big trigger is the US Federal Reserve meeting on Tuesday. "It will be watched very carefully to get any message on what does the Fed think about further stimulus," says Shah of Kotak Securities. Given the recent spate of weak economic data, markets are expecting some comments about further stimulus from the US. If that does happen it could be taken positively by the markets globally. But back home, the Reserve Bank of India has real a task on its hand - managing inflation amid the turbulence.