Today’s Sensex Crash Owes to China Yuan Devaluation to Moody’s Downgrade

bseThe Sensex on Monday ended one of the worst mayhem in share markets ending at 25,741.56 points, which is down by 1,624.51 points, sparking hue and cry as many investors became poorer over-day by Rs.7 lakh crore.

The top 10 biggest Indian firms saw their market capitalisation dilute by Rs.2 lakh crore in just few hours after the exchanges opened for trade on Monday, which will go in history as the Black Monday or one of the world’s seven worst Mondays in share market history.

However, today’s downfall is the second biggest after January 21, 2008 crash in the Sensex by 2,062.2 points. It is an all-round selling on Monday and unlikely to recover tomorrow, while experts are prompting clients to buy now. As Finance Minister Arun Jaitley already attributed the reasons for downfall to external factors, here are some external and domestic triggers as well for the downfall.

Otherwise, all key sectors like realty, power, oil and gas, banking, auto, metal, capital goods and IT sectors are on downtrend, attributed to several reasons. Some of them are here:

China Trigger

Most of the currencies have been falling since China’s surprise decision to devalue the yuan two weeks ago, in an apparent attempt to increase its exports. This has triggered fears of similar steps by other countries that may prefer to lower their currency’s value. All Asian markets were trading in deep red in early trade on Monday with Shanghai shares crashing 8 per cent sparking widespread unrest in global financial markets.

Tumbling Rupee

Indian currency is tumbling since last week and has reached Rs.66.48, the level recorded in September 2013. It is still plunging down to 67 to a dollar, losing nearly Rs 3 to a Dollar in just 10 days. If the rupee continues to fall, prices of imported chocolates, liquors, cheese and Kiwi fruits will go up soon.

The fall in rupee is directly relevant to Asian markets which are reeling under fear of a China-led global economic slowdown in 2015, the way US-led economic slowdown caused 2008 recession. It means, you tend to spend more dollars than before if you visit abroad and import something from abroad now. The imported electronic devices such as computers and smartphone’s price will also be increased. A falling rupee will also negate the gains from plunging crude oil prices, limiting the oil companies’ ability to cut retail petrol and diesel prices.

Falling oil prices

Brent and US crude oil futures hit fresh 6-1/2-year lows on Monday to drop below the latest supports of $45 a barrel and $40 a barrel each as investors fretted that a slowing Chinese economy will lead to weaker demand amid a global supply surplus. The government had listed to sell 5% stake in oil marketing and refining major Indian Oil Corporation (IOC) for Monday, which was expected to fetch about Rs 9,500 crore. A choppy market isn’t the ideal situation for meeting an ambitious Rs 69,000 crore disinvestment target for Rs 2015-16.

Moody’s Lowers India’s Growth Forecast to 7%

Fears over deficient rains in the current monsoon season and gradual progress of reforms have prompted global credit rating agency Moody’s to lower India’s growth forecast for this year by 50 basis points to 7 percent. The depreciation in the rupee hits foreign investors and diminishes their returns. According to analysts, foreign funds have started selling shares aggressively because of the rupee fall. They sold shares worth Rs 2,340 crore, which is the biggest selling since April 2015.


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