Global markets were thrown into disarray after Donald Trump pulled off a stunning victory over Hillary Clinton to be elected as the 45th president of the US. Indian stocks were also dragged down by the government's surprise move to scrap Rs.500 and Rs.1,000 notes that's feared will wreak havoc on domestic consumption, considered the backbone of the country's much-publicised growth story , at least in the short term.
The reaction from overseas funds was adverse with provisional data showing selling worth Rs.2,100 crore by foreign portfolio investors.
The stock market fall eroded Rs.1.1 lakh crore of investor wealth on Indian bourses Wednesday . The losses would have been much sharper but for a late rebound as investors, hoping the US Federal Reserve will now hold back on rate increases in December, took Trump's win in their stride. Trump's victory speech, which was more conciliatory than his crude rants against political opponents before the election, also eased the frayed nerves of investors.
The Sensex fell 338.61 points or 1.23% to close at 27,252.53. The Nifty dropped 111.55 points or 1.31% to close at 8,432. Both indices had plunged as much as 6.1% earlier in the day .
Investors fear Trump's victory could lead to a revamp in global trade terms, causing heightened uncertainty , which could result in the US Fed holding back on likely monetary tightening in December.
Mid-cap and small-cap stocks in India, which were subjected to a more severe hammering than the rest, also recovered a portion of their losses. The BSE's mid-cap index fell 1.85% and the small-cap index declined 2.7%. Earlier in the day, both these indices plunged as much as 8-10% as the initial sell-off in these shares triggered margin calls by broking firms, which sold indiscriminately if clients failed to bring in more money as margins.
The pain in smaller shares, especially those which had doubled or even quadrupled in recent years benefitting from the steady growth in consumption, may be far from over for now.
To be sure, the volatility index (VIX) -a measure of traders' expectations of near-term risks -settled down at the end of trade. After soaring as much as 36% in the morning as Trump made gains, it ended 0.89% down, tracking the partial market recovery .
The stock market's prospects will now depend on how foreign investors want to look at emerging markets like India. Between October 1 and Tuesday , these investors have dumped stocks worth Rs.6,600 crore.
The dollar fell as much as 2% early on Wednesday as investors scurried out of the US currency into perceived safe-havens such as Japanese yen and gold. But the dollar rebound after Trump gave no indications of trade negotiations in his first speech after the election results. International gold prices jumped nearly 5% to their strongest in six weeks.