Sen­sex tanks 572 points on global eq­uity melt­down

Bench­mark Sen­sex buck­led un­der selling pres­sure, in step with a global sell-off trig­gered by the ar­rest of a top ex­ec­u­tive of Huawei

Financial Chronicle - - FRONT PAGE - FC BU­REAU

THE In­dian mar­ket tanked over one-and-a-half per cent as a wave of sell-offs wafted through the global eq­ui­ties on ris­ing geopo­lit­i­cal ten­sions.

The BSE Sen­sex plunged 572.28 points (1.59 per cent) to close at 35,312.13. Sim­i­larly, the broader NSE Nifty fell 181.75 points (1.69 per cent) to set­tle at 10,601.15, as sen­ti­ments turned down­beat ahead of the Opec meet in Vi­enna, grow­ing anx­i­ety ahead of the as­sem­bly elec­tions re­sults and de­te­ri­o­ra­tion of the ru­pee.

Global stock mar­kets con­tin­ued to drop sharply on Thurs­day after hav­ing started the week in a buoy­ant mood.

An­a­lysts said in­vestors seem to have lost con­fi­dence in the longterm ef­fec­tive­ness of the agree­ment struck be­tween US pres­i­dent Don­ald Trump and Chi­nese pres­i­dent Xi Jin­ping at the G20, and were fur­ther shaken on Thurs­day by news that Huawei’s chief fi­nan­cial of­fi­cer Sab­rina Meng Wanzhou was de­tained by Cana­dian au­thor­i­ties at the re­quest of the US gov­ern­ment. Wanzhou has been ar­rested for al­legedly at­tempt­ing to evade newly im­ple­mented US sanc­tions that kicked in at the start of Novem­ber. At a time when mar­kets are ul­tra-sen­si­tive to any trade-re­lated news, risk as­sets have taken a beat­ing on the devel­op­ment. “Global mar­kets are in a risk-off mode due to fresh flare-up of ten­sions be­tween China and the US. Oil prices are inch­ing up on the ex­pec­ta­tion of pro­duc­tion cuts by Rus­sia and Opec, weak­en­ing the ru­pee fur­ther,” said Vinod Nair, head (re­search), Geo­jit Fi­nan­cial Ser­vices.

NSE Nifty fell 181.75 points (1.69 per cent) to set­tle at 10,601.15

THE mar­kets fell sharply on Thurs­day by 1.6 per cent for the bench­marks Sen­sex and Nifty 50 and more for the sect oral in­dices as it don’t like un­cer­tainty that this event-loaded month is just en­ter­ing with the Or­gan­i­sa­tion of the Pe­tro­leum Ex­port­ing Coun­tries (Opec) meet (De­cem­ber 6-7) fol­lowed by five state as­sem­bly elec­tions re­sults (De­cem­ber 11) and the US Fed­eral Re­serve meet­ing (De­cem­ber 18-19).

Along with the ex­pected oil pro­duc­tion cut and out­come of the as­sem­bly elec­tions both­er­ing do­mes­tic in­vestors, the im­me­di­ate trig­ger for the sharp fall came from the US mar­kets as Dow Jones and S&P 500 Fu­tures de­clined sharply on ar­rest of Huawei CFO Wanzhou Meng by Cana­dian au­thor­i­ties. Meng hap­pens to be the daugh­ter of Huawei founder Ren Zhengfei.

The Dow Fu­tures, which were cruis­ing with gains of 100 points on Wed­nes­day when the Euro­pean mar­kets downed shut­ter, plum­meted more than 500 points after the news of Huawei CFO’s ar­rest broke out, bro­kers said. This led to a rip­ple ef­fect on Asian mar­kets and the In­dian mar­kets too came un­der selling pres­sure.

Lat­est devel­op­ment has re­versed the pos­i­tive sen­ti­ment cre­ated in the mar­ket fol­low­ing the de­ci­sion of the lead­ers of China and the US to tem­po­rar­ily sus­pend trade hos­til­i­ties. In­vestors are wor­ried that Huawei CFO’s ar­rest may de­rail the US-China trade talks.

Such fast-paced changes are bring­ing more un­cer­tainty for mar­ket par­tic­i­pants and traders, bourses saw broad-based selling led by fi­nan­cials and IT (in­for­ma­tion tech­nol­ogy) heavy­weights.

As fi­nan­cials & IT stocks en­joy huge weigh­tage in the Sen­sex and the Nifty50, the fall was sharper for the bench­marks and as these two sec­tors fell, other Sen­sex con­stituents also seem to have fol­lowed the suit with only badly beaten Sun Pharma clos­ing in the green.

The fi­nan­cials’ fall was led by HDFC (1.47 per cent), SBI (1.59 per cent), ICICI Bank (1.01 per cent), Ko­tak Mahin­dra Bank (2.46 per cent), In­dusInd Bank (2.10 per cent) and Yes Bank (3.08 per cent).

The IT stocks’ tum­ble was led by TCS (0.72 per cent), In­fosys (1.94 per cent) and Wipro (1.24 per cent).

As the do­mes­tic eq­uity mar­ket is bat­tling three key risks in form of global trade war be­tween the US and China, crude oil price volatil­ity and the out­come of state as­sem­bly elec­tion, any of the three turn­ing nega­tive is bad for the mar­ket right now.

Ear­lier Ko­tak Se­cu­ri­ties in a re­port said, “The tem­po­rary sus­pen­sion of trade hos­til­i­ties be­tween China and the US may re­move one of the three po­ten­tial short-term risks for the In­dian mar­ket,” but it seems un­done right now.

“We will get more clar­ity on the level of oil prices over the next few weeks based on the out­come of the De­cem­ber 6 Opec meet­ing and chances of the BJP form­ing the next na­tional gov­ern­ment based on the out­come of on­go­ing state elec­tions, re­sults of which will be avail­able on De­cem­ber 11,” Ko­tak Se­cu­ri­ties said.

The out­come of as­sem­bly elec­tions seems a big­ger fac­tor right now for the In­dian mar­kets than crude oil price move­ment. VK Sharma, head (pri­vate clients group & cap­i­tal mar­kets), HDFC Se­cu­ri­ties, said, “Fri­day is the last day of the state elec­tions. The mar­kets are keenly await­ing the out­come of state elec­tions, due on De­cem­ber 11.”

Eq­uity mar­ket an­a­lysts are ex­pect­ing height­ened volatil­ity dur­ing the next six months, which has led to cau­tion among the in­vestors and some profit tak­ing.

Kam­lesh Rao, man­ag­ing di­rec­tor & CEO, Ko­tak Se­cu­ri­ties, pointed at key fac­tors like global trade war, the US Fed rates and Brexit out­comes to set the sen­ti­ment of the global econ­omy in 2019.

In terms of the In­dian econ­omy, Rao in­di­cated that the next six months might prove to be chal­leng­ing due to forth­com­ing gen­eral elec­tions – thereby lead­ing to some volatil­ity in the mar­kets. Pos­i­tive out­come of elec­tion re­sults in form of a sin­gle party win­ning ma­jor­ity vote will be good for the mar­kets, ac­cord­ing to an­a­lysts.

“The Nifty can wit­ness a po­ten­tial up­side of 16-20 per cent to get to a range of 12,500-13,000 points if elec­tion out­come is pos­i­tive (i.e. a sin­gle po­lit­i­cal party win­ning ma­jor­ity votes) and earn­ings growth mo­men­tum is main­tained,” Rao said.

Brent oil prices sank un­der $60 on Thurs­day after Saudi Ara­bia made re­marks that were deemed overly cau­tious by an­a­lysts ahead of Opec’s lat­est out­put de­ci­sion.

Lon­don’s Brent North Sea oil sank $2.94 to $58.62 per bar­rel com­pared with Wed­nes­day’s close, after Saudi Ara­bia’s oil min­is­ter Khalid al-Falih said Opec was seek­ing a “suf­fi­cient” cut in out­put to prop up prices.

As the In­dian eq­uity mar­ket is highly sen­si­tive to crude oil price move­ment, a rev­er­sal after the fall in the eq­uity mar­ket for last three days due to sharp rise in crude price above $60 per bar­rel may get re­versed on Fri­day, if Opec de­ci­sions are not too far away from what mar­ket is ex­pect­ing, mar­ket may re­cover over next few ses­sions as the fall in crude oil price will get priced in from Fri­day on­wards.

The US Fed­eral Re­serve’s De­cem­ber 18-19 meet­ing is likely to be an­other risk for the mar­ket. A 25bps Fed hike is ex­pected.

“On the global front, the US Fed rate is ex­pected to rise from me­dian of 2.12 per cent to 3.12 per cent by end of De­cem­ber 2019. This should lead to rise in US 10-year bond yields. Av­er­age/me­dian spread of the In­dian 10-year bond and the US 10-year bond yield is 500 bps. If the US 10-year yield goes up in 2019 it will put pres­sure on the In­dian 10-year yield. This will be nega­tive for eq­uity val­u­a­tions,” Kam­lesh Rao of Ko­tak Se­cu­ri­ties said.

In­vestors are wor­ried that Huawei CFO Wanzhou Meng’s (in pic­ture) ar­rest may de­rail the US-China trade talks

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