After a recovery seen on Thursday, the Sensex slumped again on Friday by a staggering 550 points, as global markets sank, following a sell-off in the US markets. The Sensex was last seen trading at 33,886 points, down 536 points in trade.
Why the Sensex has fallen on Friday?
The Dow Jones plummeted 1032 points on Thursday after bond yields in the US jumped. The Dow Jones index has now fallen a staggering 10 per cent from peak levels. The S&P lost 3.7 per cent on Thursday, which took it to a new weekly low.
It all began with the US benchmark yield on the 10-year U.S. note rising to 2.88 percent before falling to 2.851 percent.
When bond yields rise, investors dump stocks and buy debt, as these are perceived to be much safer bets. The worry is that inflation will creep up and the US Fed will hike interest rates faster than anticipated.
Asian markets plunge
Back in Asia, markets collapsed across the board, weighed down by the US markets. The Japanese Nikkei was down a good 3.5 per cent, while the Shanghai Composite was the worst hit, dropping by a staggering 4.5 per cent.
Insurance companies were the hardest hit with with Ping An Insurance Group losing 8.86 percent and China Life Insurance trading down 9.53 percent. The Korean Kospi too lost ground, losing 2.5 per cent, with Samsung losing falling three per cent in trade.
The Hong Kong's Hang Sang too lost more than 4 per cent, with financials being the biggest contributors to the losses.
Major Sensex losers
Almost all of the Sensex stocks were trading in the red, though there was lesser damage in IT and pharma stocks. Banking stocks also took it on the chin with ICICI Bank, State Bank of India, IndusInd Bank and PNB among the major losers.
The mid cap and the small cap index, which staged some recovery in trade on Thursday, lost big time on Friday. PSU banking stocks were the biggest losers and high beta names from the space took a pounding.
Where are markets headed?
Up until a few weeks ago, nobody predicted the sharp fall in the markets. Since after the Union Budget, the Nifty has lost a cool 700 points or close to 7 per cent. However, some developed markets like the US have now lost close to 10 per cent. It is difficult to say if there would be a recovery in stocks.
Most analysts are suggesting to stick to Sensex and Nifty stocks, as the damage here could be very limited. Much would however depend on the support institutions give to the market, given that Foreign Portfolio Investors would continue to sell.
A fall on the Nifty below the 10,000 mark, could lead to fresh selling pressure.
Rs 2.4 lakh crores wiped out in seconds
Markets were quick to react to rising bond yields with Rs 2.4 lakh crores being wiped out in seconds.
Many market observers believe investors have now woken up to the complacency that was set in, with markets scaling daily highs in January.
They believe that if bond yields in the US continue to strengthen past the three per cent mark, there could be a storm brewing for the global markets. Hence, their belief is that every rally in the markets should be sold into. Indian markets continue to be expensive in most parameters and hence a further downside cannot be ruled out.