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Global jitters take markets to lowest levels since May 2009

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Mumbai | Updated: January 7, 2015 1:56:48 AM

Indian equities tumbled sharply in sync with the weak sentiment across equity markets...

BSE Sensex, NSE Nifty, market newsThe Sensex lost 3.1%, or 855 points, to end the session at 26,987.46, the worst performer in Asia. PTI

Indian equities tumbled sharply on Tuesday in sync with the weak sentiment across equity markets globally where investors have been spooked by the plunge in the price of crude oil to levels of below $52 per barrel, the lowest since May 2009.

The Sensex lost 3.1%, or 855 points, to end the session at 26,987.46, the worst performer in Asia. In a sign of how quickly risk moved off the table, every stock in the Sensex and Nifty, save Hindustan Unilever, ended in the red.

Anticipating prolonged fragility in the world economy that could be worsened if Greece exits the euro zone, investors have been moving money into safe havens.

Global sovereign bonds saw a smart rally that drove down yields to a record low; the fall in crude oil prices, would, it was felt, dampen the outlook for inflation and prompt central banks to be more accommodative in order to support growth.

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The euro lost further ground against the dollar, falling to its lowest since February 2006 and was trading at 1.1910.

Treasuries rose for a seventh day on Tuesday, pushing 10-year yields briefly below 2%, for the first time since October.

Yields on government securities fell to records from Japan and Australia to Germany and the UK.

The global market sell-off in equities intensified on Tuesday on growing concern over Greece; Prime Minister Antonis Samaras said this month’s election could lead to the nation exiting the euro area.

Even as certain markets like Greece and Sweden were closed on account of Epiphany holiday, European markets opened in the red, extending their previous day’s dismal performance in which Greece’s ASX index had lost 5.6% while equity barometers of Spain, France and Portugal dropped more than 3% on Monday. On Monday, Dow Jones industrial average (DJIA) closed down 1.9%, or 331.34 points, at 17,501.65.

Amidst the market plunge, Indiax VIX, the gauge of market volatility rose to its six-month high of 17.42.

Andrew Holland, CEO, Ambit Investment Advisors said the volatility was likely to continue in the near-term as global investors were turning risk-averse.” The manner in which commodity prices and Euro have fallen indicates that investors are reducing their equity exposures first before questioning the rationale for the fall. The market will closely watch the outcome of ECB meet scheduled on January 22 for its stance on quantitative easing,” Holland added.

In the first four sessions of 2015, Foreign Portfolio Investors (FPI) have sold close to $115 million, somewhat less than their withdrawals from emerging markets like South Korea ($236 million) and Taiwan ($670 million). According to EPFR, global emerging market funds and Asia ex-Japan funds witnessed outflows of $8.6 billion and $4.8 billion in 2014.

Historical data for the past ten years does not establish a strong positive co-relation (11%) between the Indian markets and benchmark crude oil prices. However, data compiled by FE suggests that whenever the quarterly average price of crude oil has decline by more than 2%, Sensex has reported negative to muted returns for nearly half of these instance.

Experts say that even as global factors may continue to weigh on Indian stocks, the fall in crude oil prices is a positive development for India.

Rakesh Arora, MD and head of Research, Macquaire Securities India, thinks that the sharp correction in Indian market offers good opportunity for investors.

“ Global liquidity has come down triggering a sell-off in commodity prices. As a result, even the foreign fund flow to India has slowed. However, Indian markets continue to boast better fundamentals,” he added.

With inputs from Bloomberg

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