Indian equities drown on global cues

Concerns over the global economic recovery, the Chinese economy, slipping commodity prices and a debt-defying con job by an international auto major depressed Indian equity markets by over one percent in the just-concluded weekly trade.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) fell by 354.5 points or 1.35 percent to 25,863.50 points from its previous weekly close of 26,218 points.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) too declined. It plunged  by 113.4 points or 1.42 percent to 7,868.50 points.

"During the just concluded week, the market corrected by more than 1 percent; which is mainly due to sharp selling on Tuesday, September 22," Vaibhav Agrawal, vice president, research, Angel Broking, told IANS.

The barometer index had slumped over 540 points or 2.07 percent on Tuesday, as major European markets sank by 2-3 percent.

"The decline in our domestic markets was mainly owing to fall in the European and US markets post the scandal surrounding emissions-test cheating at (German car major) Volkswagen AG coming to the fore," Agrawal stated.

The downward trajectory was ignited by the Volkswagen crisis, which is being dubbed as one of the "most expensive con-jobs ever." The crisis soon cascaded into a worldwide downfall in the entire auto segment stocks.

The fudging scandal began unfolding last week when the European car giant said it had used a software in the US to provide false emission test results.

In India, stocks of Bosch and Motherson Sumi were negatively impacted by the fudging crises.

If fudging was not enough, a string of negative news items eminating out of China prompted fears of a recession in the $10 trillion economy.

"Data coming out of China continued to stoke concerns about the health of the world's second largest economy," Shreyash Devalkar, fund manager - equities, BNP Paribas Mutual Fund, told IANS.

The Chinese PMI (purchasing managers' index) data showed that the country's factory output in September unexpectedly shrank to a six-and-a-half year low.

The continuous slide in the Chinese markets spooked global investors and dampened Indian equities on fears of another recession - caused by the slowdown - in the Chinese economy.

The massive implosion in the Chinese markets, by some estimates, has eroded 35-40 percent of its entire stock value. This, coupled with the devaluation of the yuan and lower factory output, signals an impending slowdown.

"China PMI saw a continued contraction in manufacturing activity and a possible bond default from one of the government owned company. This had its fallout felt on both domestic and global equities," Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.

To add fuel to the fire was a sharp fall in global copper prices that was sparked by concerns over a surplus of the metal.

"The movement in copper prices, which witnessed its biggest one day drop in more than two months and sank to a three week low in global markets, served to consolidate the view of a sluggish global economic recovery," Devalkar elaborated.

Copper enjoys the status of an important benchmark for commodity demand and economic recovery due to its importance as an industrial metal.

With all the negative cues hogging the limelight, even positives such as US Fed's decision to maintain lending rates was received with scepticism and concern as an indication of a sluggish global economic recovery.

Furthermore, investors were seen reluctant to chase even attractive valuations ahead of key events like release of major macro data and the monetary policy review of the Reserve Bank of India (RBI) lined-up for the next week.

"Investors preferred to stay light ahead of the key events coupled-with long weekend and unwinding of positions on account of September derivative contracts expiry and continued fall in commodity prices," Gaurav Jain, director with Hem Securities, explained to IANS.