Indian Stock Markets: From 18k to 17k in no time !

Just a couple of weeks back I was contemplating to write about the journey of Indian stock markets with Sensex crossing 18000 levels. But, to my surprise, I am finding myself writing over here about journey of Sensex from 18000 to 17000 points, a steal of 1000 points from the recent peaks.

Without any doubt it can be pointed out that the contagion risks of Greek crisis are now spreading to other weaker European countries such as Portugal, Spain, Italy and now even Hungary; regarding their susceptibility of exiting the vicious debt traps.

Chinese Woes

To make matters worse for the global bourses, the People’s Bank of China raised banks’ reserve requirements by 50 basis points for the third time this year, hinting towards aggressive unwinding of bail out measures by the emerging markets led by China and India which were announced during global recession.

Commodity stock, especially Metal counters, across Asian markets including India, received a jolt on the back of news of slower growth of manufacturing in China for the month of April pointing towards fears of demand slowdown from the world’s fastest chugging economy.

Copper tumbled to two-month lows under $7000 a tonne even as other metals like Zinc, Lead and Nickel tumbled by 6% on Tuesday. Even Copper witnessed a sharp fall of about 5% on the back of concerns of demand slackening from China and subsequent inventory surge.

Contagion Crisis

Taking cues from the Greek crisis and its contagion spreading across weaker sections of Europe, the Euro tumbled to a one-year low against the dollar at $1.2978, on fears that the sovereign crisis could spread across other euro zone countries. The 10-year yields for Greek, Portugal and Spain struggled at 9.37%, 5.44% and 4.10% respectively.

Hungary’s finance minister stated that it could be difficult to accommodate within the deficit target of 3.8% of GDP and that the gap may reach 6.5%. The official has stressed on the priority to exit a ‘debt trap’ by jumpstarting the growth in the economy.

Shining Gold

The only asset class that mirrored a positive sentimental reaction, as against the fast-spreading European crisis, is Gold – a traditional asset known for its safe haven characteristic. Gold prices surged to one-year high at $1170 per ounce as risk-averse investors flocked to the safety of shining yellow metal.

Indian Stock Market Slump

Coming to Indian stock markets, the benchmark indices had slumped to a nine-week low as foreign institutional investors book gains in emerging markets to offset their losses in crisis-hit European regions.

Leading the slump in Indian indices were Metal counters on concerns of drop in metal prices. State-owned SAIL lowered prices of long steel products on falling demand. This led to fear of yet another round of slackening of demand for ferrous and non-ferrous metals.

Markets Waiting for Cues

The stocks witnessed across the board fall on concerns that the $144 billion bail out package sponsored by EU and IMF for Greece may not be able to contain the region’s debt risks. Further, the budget deficit in Spain is likely to worsen over next few months. Ultimately, this may affect Indian exports to susceptible regions of Europe and fund inflows from there.

At the same time, the crisis in developed nations may also lead to flight of capital to fund their own requirements. Questions are being raised upon ability of Greek government to tackle the budget deficit over next three years just as it comes under the grip of severe recession. Romania’s central bank reduced its benchmark interest rates to stimulate its economy.

Are these aftershocks of global recession or renewed concerns of developed world?