The key equity indices Sensex and Nifty plunged heavily on Friday after on a possibility of North Korea conducting another hydrogen bomb test, this time in the Pacific Ocean. The benchmark Sensex shed 347 points to mark a day’s low of 32,023.37 points and the broader Nifty 50 index lost as much as 130 points to fell below 10,000 mark to 9,992.15 points. The major drag to the indices came from the heavyweight stocks such as Reliance Industries and ICICI Bank. We take a look at five broad reasons which can be attributed to the market fall.
North Korea fears
The geopolitical tensions edged up after US President Donald Trump authorized stiffer new sanctions in response to North Korea’s nuclear weapons advances, drawing a furious response from Pyongyang, Associated Press reported. North Korean leader Kim Jong Un retaliated by calling Trump “deranged” and saying he’ll “pay dearly” for his threats, while Kim’s foreign minister reportedly said the country might plan to test a hydrogen bomb in the Pacific Ocean.
China rating downgrade
Asian markets got their first chance to react to Standard & Poor’s announcement late Thursday that it was downgrading China’s credit rating, citing rising debt levels. S&P lowered its sovereign rating by one notch, to A+ from AA-, saying credit growth increased China’s economic and financial risks. Despite the cut, China still remains five notches above India. Earlier, the agency had warned that rising local debt was putting pressure on China’s performance.
“The downgrade reflects our assessment that a prolonged period of strong credit growth has increased China’s economic and financial risks.The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent,” S&P said in a statement.
Heavy sell-off in blue-chip stocks
The stocks of heavyweight companies such as ICICI Bank, Reliance Industries, L&T, HDFC Bank, SBI, Infosys, Axis Bank, Hindustan Unilever, and Tata Steel contributed the most to the Sensex decline. Collectively these 9 alone shaved off about 235 points out of the 280 point drop in the index. The 30-share barometer was trading down 280 points or 0.87% at 32,089.66 points. Shares of Ultratech Cement, Yes Bank, Hindalco, Vedanta, Ambuja Cement, Tata Steel, ICICI Bank, Indiabulls Finance, ACC, and Hero MotoCorp were the biggest loser on Nifty 50, fell up to 4%.
Rupee fell to over 6-month low
Indian rupee dived to a six and a half month low on Friday morning on the news reports that government is planning Rs 40,000 crore fiscal stimulus to the economy to boost exports, support MSMEs, and expand bank credit, even at the cost of letting the fiscal deficit widen a little. The rupee today dropped by 34 paise to a six and a half month low level of 65.15 against the US dollar on frenetic dollar demand from importers and banks. The early losses in domestic equity markets and unabated foreign fund outflows weighed on the rupee.
Choppy regional markets
Most Asian stock markets fell Friday as investors turned cautious following new US sanctions targeting North Korea and credit rating downgrades for China and Hong Kong. Japan’s benchmark Nikkei 225 slipped 0.2% to 20,309.58 points and South Korea’s Kospi lost 0.9% to 2,385.22 points. Hong Kong’s Hang Seng shed 0.8% to 27,879.95 points and the Shanghai Composite fell 0.4% to 3,344.99 points. Australia’s S&P/ASX 200 added 0.5% to 5,675.7 points.
Wall Street drop
US stock indexes slipped on Thursday as investors braced for a third interest rate hike this year and the United States ordered new sanctions against North Korea. The S&P and the Dow snapped a run of record closing highs and Apple was the biggest drag on the three major indexes with a 1.7% drop on worries about demand for its latest smartphone. The Dow Jones Industrial Average fell 53.36 points, or 0.24%, to 22,359.23 points, the S&P 500 lost 7.64 points, or 0.30%, to 2,500.6 points and the Nasdaq Composite dropped 33.35 points, or 0.52%, to 6,422.69 points.