MARKETS FALL AND PANIC RISES

By Ruma Dubey

The markets today have literally fallen through the floor. The momentum of its southward journey, as the day progressed got only higher, with the BSE Sensex crashing down over 560 points at one time. Everyone was left looking at the screens, gaping mouth and wide eyes, wondering, “What has gone so wrong today?”

There are actually a multiple factors playing on the minds of the market today. A quick look to first understand what exactly is the market reacting to.

• Crude oil continues to fall and OPEC once again ruled out any cut in output; in fact UAE went on record to say that OPEC might not cut production even if crude goes down to $40/barrel.  Today, brent crude futures fall below $60 per barrel for the first time since July 2009.
• Putin is known to work better in the night after his day-long fitness regimes and long lunches. So yesterday night, in a surprise move, Bank of Russia hiked its key interest rate to 17% from 10.5% and its currency crashed. This shows that Russia is no longer able to sustain these lower oil prices and sanctions after Ukraine.
• China data which came in today morning only added to the woes.  The HSBC Manufacturing Index contracted to 49.5 in Dec compared to Nov’s reading of 50. A reading above 50 indicates expansion, while one below 50 points to contraction on a monthly basis.  This contraction is a 7-month low.
• News from India was not good. Apart from the degrowth in Oct IIP, which the market shrugged off as one-off. What was more worrisome was the widening of India’s trade deficit to an 18-month high in November at $16.86 billion, its highest level since May 2013. Gold imports jumped 34% for Nov (MoM).  
• Exporters might be a happy lot today but the rupee’s fall today was akin to panic dumping. It hit a low of Rs.63.46/dollar, weakest since 13^th Nov, 2013.
• Over and above all these factors, this is the month when FIIs tally and close their books for 2014. Thus seasonally, it is selling time and they have been only selling consistently. Till the 5^th of Dec, they were net buyers but after that, they have been selling every day.  Yesterday, they sold shares worth Rs.804 crore and for Friday, they sold shares worth Rs.613 crore.
• The world markets are also waiting to see what Janet Yellen, Fed Reserve chief, will say tomorrow. She will not announce rate cuts but all are waiting to see the ‘tone’ of her statement – hawkish or dovish?

Well, it’s just a culmination of many factors, all coming together which is playing on the market. There is nothing which is a 'shock' or not known here, except for Russia. Yet, the market chose to react today only. There is wide spread scare and this has triggered off a kind of panic selling. So should you also panic? Well, if you are long term investor, this is good time to pick up quality stocks as the long term story if India remains intact.