30.9.16

Stocks Tumble, Rupee Weakens



Escalating tensions between India and Pakistan sent the domestic financial markets tumbling with benchmark indices dropping 1.6% -their biggest single-day fall in three months. The rupee also weakened 0.6% to Rs.66.86 against the dollar.
Traders' perception near-term risks in the market increased with the volatility index (VIX) soaring 33% -the highest in a day in 13 months -amid heightened concern that India's military strikes could intensify into a full-blown war prompting foreign investors to pause their investments into the country .
Mid and small-cap shares fell sharper than blue-chips as they were caught in a vicious cycle -the rush to square off positions built on borrowed money pulled down stocks which in turn triggered more margin calls. The selloff on Thursday shaved off Rs.2.31 lakh crore from India's total stock market value to around 108 lakh crore.Analysts expect the market to be on tenterhooks over the next few days as investors have been caught off-guard by the pace of declines on Thursday.
BSE's Sensex fell 465.28 points, or 1.64%, to close at 27,827.53. NSE's Nifty declined 153.90 points, or 1.76%, to close at 8,591.25. The last time benchmark indices fell more was on June 24, 2016 after Brexit.
The BSE's mid-cap index fell 3.6% to its lowest in a year. The smallcap index dived 4% -the highest single-day fall since February 11.
So far, valuations of Indian stocks have remained elevated because of better economic outlook, corporate earnings prospects and geopolitical stability. The price-to-earnings ratio of MSCI India index was 15.6 times as against 12 times of MSCI's emerging markets index. Now, this premium could shrink on worries that the tensions with Pakistan would distract the government from its development agenda.
The Reserve Bank of India intervened to curb intraday volatility and some state-owned banks were seen buying the rupee. The benchmark bond yield jumped five basis points, pushing prices down.




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