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Sensex crashes by 855 points. Another jolt for the Indian economy?

January 7, 2015
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The BSE Sensex nosedived for the second consecutive session on Tuesday by over 900 points in one of its seventh worst falls ever. Such huge drops were last seen owing to the 2008-2009 recession belt. The NSE Nifty also dropped below the 8,200-mark amid overnight losses in the markets in US, global decline in oil prices and political crisis in Greece.
The 30-share index finally closed at 26,987.46, down by 854.86 points. The Nifty closed at 8127 down by 3 per cent.

Reasons behind the sensex fall:

Crude oil: The global crude oil prices are in a downward spiral and have fallen to April 2009 lows. This resulted in a sharp correction in global markets, including India.
"This (low prices) is great news for motorists, but it presents a headache for policy makers," ANZ analysts said in a note.

Crude has created a lot of uncertainties in global markets, which are impacting the Indian market sentiment in the wrong ways. The recent foreign fund sell-off in equities and decline in the rupee's value can be attributed to this constant fall in crude prices. Conventional belief says that the falling crude should help the Indian markets. However, factors like the central bank’s inclination to play hooky and not drop the interest rates or in lieu the constant excise rates play a huge role in undermining any ray of hope.
The excessive supply is also being attributed to lack of demand as most of the major global economies are facing a slowdown. A global economic slowdown may impact Indian exports to Europe and other countries.

Greece: Concerns that Greece may exit eurozone is making global investors jittery. This has led to a sharp fall in euro-zone as risk-averse investors are looking at the US dollar as a safe haven in times of volatility. Funds are flowing back to stronger economies such as US. On Tuesday, shares worth INR 1,571 crore were sold by FIIs in the cash market.

Greece are major trade partners for the US, Eastern Europe and Asia. News of them crashing out the euro zone has put the spotlight back on Eurozone!

In an article for Reuters, market expert Ambareesh Baliga wrote, "Troubled international economies and the consequent worldwide slowdown helped bring down commodity prices. But 2015 could open up worries on the export front for India as more economies start to wobble."

Foreign institutional investors: FIIs playing safe instead of betting on emerging markets. Foreign funds, which aggressively bought Indian stocks last year, are booking profits amid a "risk-off" strategy. FIIs pumped in a mere INR 2100 crore in December, their lowest investment in in last 10 months.
Anil Manghnani of Modern Shares & Stock Brokers said, "Tuesday's fall does not signal the end of bull market, it's just a corrective phase within a bull market."

Analysts say that because the NSE index grew by 31.4% in 2014, its best since 2009, it is susceptible to falls.; although they say hopes about an economic recovery and fiscal reforms could prevent excessive declines.


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