The market opened on Monday with big gap down on carnage across the globe as investors worried over Chinese economic growth. The Sensex fell over 1,000 points to 26,359.53; and the Nifty also dipped below the 8,000-level by tumbling 309.05 points, or 3.72 per cent to 7990.90 in early trade. All 50 constituents of Nifty were in red.
Here are some of the reasons why the markets tanked on Monday
Shanghai shares dived over 8 per cent to a five-month low
With Shanghai slumping more than eight percent concerns deepened about China’s stalling economy which has rattled equity investors around the world. Oil prices have fallen after slipping below $40 a barrel for the first time in six years. Weak Chinese manufacturing data deepened worries about the slowdown in the world’s number two economy.
China-linked shares tumbled in early trading, with Hong Kong dipping 3.91% while Shanghai plunged 8.19 percent in early deals. Tokyo dived 3.09% by late Monday morning, while Seoul lost 1.88% and Sydney fell 2.89%, extending heavy losses from last week.
Asian stocks dived to 3-year lows today
Asian stocks slumped to 3-year lows on Monday as a slump in Chinese equities gathered pace, hastening an exodus from riskier assets. A 2.6% fall in S&P 500 mini futures to a 10-month trough during Asian trading hours suggested the falls could continue later in the global session.
Safe-haven government bonds and the yen rallied on the widespread unrest in the financial markets, set in motion nearly two weeks ago when China sharply devalued the yuan and stoked concerns about the state of its economy.
Fears that China could be forced to devalue the yuan even more
Recently, China’s central bank devalued its tightly controlled currency, causing its biggest one-day loss in two decades. But as the world’s second-largest economy continues to sputter, there are fears that China could be forced to devalue the yuan even more. China has been trying to engineer a shift from export-led growth to an expansion based on consumer spending while simultaneously trying to deflate a property bubble.
According to analysts, China’s which loosened the yuan’s link to the value of the dollar, suggested that some policymakers may be losing patience with that strategy, and reaching for the familiar prop of a cheap currency. Nobel prize-winning economist Paul Krugman described the decision as “the first bite of the cherry,” suggesting more could follow, and in a reference to Chinese president Xi Jinping, warned that such a modest move gave the impression that, “when it comes to economic policy Xi-who-must-be-obeyed has no idea what he’s doing”.
Rupee has lost over 4 per cent in the last two weeks.
The Indian rupee has been better off as compared to its emerging market counterparts, but it has lost nearly 4 per cent in the last two weeks. The rupee slumped to as low as 66.48 per dollar, its lowest since September 2013, as Asian markets reeled under fears of a China-led global economic slowdown. The weakness in the rupee drew the attention of Reserve Bank of India Governor Raghuram Rajan, who on Monday said that the central bank will not hesitate to use reserves to reduce the volatility in currency.
Foreign funds have started selling shares aggressively because of the rupee fall
The depreciation in the rupee hits foreign investors and diminishes their returns. Foreign investors have started selling domestic shares aggressively. On Thursday, they sold cash shares worth Rs 1,000 crore, while on Friday they sold shares worth Rs 2,340 crore, which is the biggest selling since April 2015. NEW The Indian rupee’s slump has also added to the woes of Indian companies that are scrambling to repay foreign-currency bonds and it is increasing the likelihood that foreign investors will be left out of pocket.