The Dow Jones fell a staggering 1,175 points in trade, dragging global indices lower, with the S&P 500 seeing its biggest ever fall since 2011. The weakness in the US markets dragged the Sensex, which fell 561 points in trade ending the day at 34,195 points. There was remarkable recovery in the last one hour of trade, as European markets cut their losses. At one stage the Sensex had lost more than 1,100 points in trade.
Major losers on the Sensex
Every single Sensex stock ended in the red, though the sell-off was huge in the IT space, especially in TCS.
Metal stocks were also hit including names like Vedanta and Tata Steel. Shares in Tata Motors dropped sharpy after the company's results did not meet expectations, particularly with regards to Jaguar Landrover.
Consolidated net profit at the company grew to Rs 1,215 crore for December quarter, which was was below analysts expectations of around Rs 3,000 crores.
Stocks from the banking sector saw deep cuts with the PSU banking index ending more than 2 per cent lower. The FMCG index too lost heavy ground and ended the day 2 per cent lower.
What led to the fall?
It all began on Friday, when the US jobs Non-farm payrolls rose by a solid 200,000 jobs in January, against an anticipated 180,000 jobs. The U.S. Labor Department data showed that this was the largest annual gain in more than 8-1/2 years. Average hourly earnings rose and boosted the year-on-year increase to 2.9 percent, the largest rise since June 2009.
Now, the worries are this could trigger inflation, which saw bond yields rise. When bond yields rise, it triggers a sharp-sell off in the equity markets. This is because investors move money away from risky assets like equities to the safer bonds.
Asian markets tumble
Back in Asia the carnage spread across markets. The Japanese Nikkei was down with a drop of more than 4.73 per cent, while the Korean Kospi dived 1.54 per cent, while the Hong Kong's Hang Sang was down 5 per cent with a more than 1,000 points fall.
Most analysts see the fall as a part of a long overdue correction, which has not happened for the last many months. The direction of the market has been largely one-sided with the markets only moving higher. The present drop may leave investor wealth sharpy eroded.
Should you be buying equities now?
We at GoodReturns.in had all along predicted that there could be a sharp fall in equities and the only reason is the sharp valuation in stocks.
The Sensex p/e at the current moment is 24.51 trailing EPS. This is way higher than the long term average of 17 times, which is why the Sensex should fall another 10 per cent or more for valuations to turn reasonable.
With Long Term Capital Gains on shares already levied, equities do not look attractive. It would be a good idea to buy when the Sensex reaches levels of around 32,000 points.