The China Syndrome

Panic swept the global markets two weeks after the first tremors were felt when China unexpectedly devalued the yuan. Indian stocks tumbled, crashing by the most in more than seven years, amid a tsunami of sell orders that started in Asia, flooded across Europe and then slammed into the US. In China itself, stocks plunged by a level last seen in 2007, crude oil fell further and commodities plummeted to a 16-year low. The Dow took a 1,000-point plunge at the opening. Bloomberg said more than $5 trillion of investor wealth had been wiped out due to the drop in equities in the past two weeks across the world.
While the rupee slid to a two-year low on Monday , stock market investors in India lost Rs.7 lakh crore in the biggest single-day loss in ` market capitalisation. The Sensex plunged 1,624 points, or 5.94%, to 25,741.56, its sharpest intra-day drop since June 2009. The Nifty plunged 490 points, or 5.92%, to end at 7,809, its heaviest intra-day slump since October 2008.
The NSE Index VIX, which measures volatility, clocked a record intraday gain of 64% to 28.13, reflecting extreme global nervousness about the ability of the Chinese government to prevent a slowdown that could inflict severe damage on many economies around the world.
As investors counted their losses on Monday evening, Prime Minister Narendra Modi led a high-level review of the situation. He favoured pushing ahead with ongoing reforms and suggested consultation with stakeholders to chalk out the agenda for future. The government ruled out any immediate package. The meeting was attended by Finance Minister Arun Jaitley, Minister of State for Finance Jayant Sinha and senior officials of the ministry.
Earlier in the day, Jaitley and Reserve Bank Governor Raghuram Rajan sought to calm jittery investors.
Jaitley said the rout was “transient and temporary in nature“ and had little relation to India. “The factors responsible for this are entirely external,“ he said in Delhi. “There is not a single domestic factor in India which has either contributed to it or added to it,“ Jaitley said.
Rajan said India's macroeconomic underpinnings were sound and that its reserves could be deployed to protect the currency. “India is better placed compared to other countries with low current account deficit, and fiscal deficit discipline, moderate inflation, low short-term foreign currency liabilities, very sizeable base of forex reserves,“ he said. “We will have no hesitation in using our reserves when appropriate to reduce volatility in the rupee.“
The rupee weakened to 66.64 against the dollar, its lowest since September 2013. India's foreign exchange reserves are at a record $355 billion.

Earlier in the day, the Shanghai Composite Index posted its biggest one-day percentage loss since 2007, closing 8.5% lower.
In India, foreign institutional investors (FIIs) sold stocks worth Rs.5,275 crore on Monday. In the past four trading sessions, they have sold shares worth about Rs.9,000 crore. Domestic institutional investors (DIIs) bought shares worth Rs.4,097 crore on Monday.
But the future appears upbeat for India, feel some experts.  On Monday, the CNX Midcap Index dropped 8.77%, its biggest intra-day fall since 2008.

Some influential traders faced margin call pressure after the Nifty broke crucial technical support levels of 8200, 8000 and 7800, accentuating the market decline. Margin calls were triggered after brokers failed to collect money from clients who had taken leveraged positions on stocks with expectations that markets would go higher.