The sharp selloff in Asian stock markets on Wednesday following growth concerns in China drove the Sensex to a two-year low of 15,699.97 points, a fall of 2.3% over Tuesday?s close. The broader Nifty also hit a two-year low, giving up 2.2% to end the session at 4,706.45 points. During the day, the Sensex had crashed 587 points, slipping below the 15,500 mark as foreign institutional investors (FIIs), who brought close to $29 billion last year, continued to take risk off the table. In 2011, FIIs have so far been marginal sellers, offloading around $200 million of equities on Wednesday.
With the HSBC manufacturing PMI for the world?s second largest economy falling to 48, the Shanghai Composite closed down 0.7% at 2,395.10 points, the month?s lowest.
In Asia?s other big market, Hang Seng gave up 2.1%, sliding below the psychological support of 18,000 as growth concerns continued to weigh on investors. With this, the index has lost 22.66% this year. India, of course, has been among the worst-performing markets in 2011, giving up 34%, partly because of the sharply depreciating rupee. The Chinese market has lost 11.61% while the Taiwanese market has fallen 27%.
FIIs have turned uncomfortable with India?s increasingly difficult macroeconomic environment as high inflation and interest rates stifle growth.
Moreover, lack of policy action on the part of the government has prompted most fund managers to remain underweight on India at a time when risk aversion remains high across the world. India continues to trade at a slight premium to most of its emerging market peers, but market watchers say it could disappear if the economy slows any further and the currency continues to depreciate.
Corporate earnings for the three months to September have been disappointing, with profits of the Nifty companies falling for the first quarter in two years.
Analysts estimate that given the waning demand and input cost pressures, the profits for the Sensex set of companies, will now grow at just 14.4% in 2011-12 compared with a 19% increase anticipated before the results season.
Meanwhile, finance minister Pranab Mukherjee attributed the market crash to withdrawal of funds by foreign investors and depreciation of the rupee. ?Markets have crashed because of continuous withdrawal by FIIs. There is still uncertainty prevailing in the euro zone and the rupee depreciation also has had an adverse impact,? the minister told reporters.