China equity turmoil drags Sensex 484 pts, Nifty below 8400

Moneycontrol Bureau

Equity benchmarks crashed following the equity rout in China on Wednesday, losing 1.7 percent dragged by banking & financials, metals and auto stocks. The broader markets, too, caught in bear grip.

The 30-share BSE Sensex lost 536 points intraday, before closing at 27687.72, down 483.97 points. The 50-share NSE Nifty shed 147.75 points to 8363.05 after seeing an intraday low of 8341.40. The BSE Midcap and Smallcap indices slipped 1.3 percent each. Two shares declined for every share advancing on the Bombay Stock Exchange.

Experts believe the market may correct further due to China's volatility. According to them, key triggers for the near term are China, Greece and April-June quarter earnings that will kick off by TCS on Thursday.

Tirthankar Patnaik, India strategist at Mizuho Bank said the market hasn’t priced in the interim volatility that one is seeing from the Chinese market. He feels the Nifty could go down to 7,900 levels if this volatility continues.

"People have been focused very hard on Greece over the last few weeks even as China collapsed in their own neighbourhood, We believe that Chinese markets could go down further despite measures announced by the China Securities Regulatory Commission (CSRC) frequently. Therefore downside risk remains for the Nifty," he reasoned.

Rahul Chadha, Co-CIO, Mirae Asset Global Investments said foreigners would be aggressive buyers if the market were to fall another 5-7 percent from here. "[But] you need to see earnings follow through before people meaningfully increase India exposure," he added.

China's Shanghai Composite Index closed 5.9 percent lower on relentless sell-off as trading halt in more than 40 percent listed stocks and triggering of another round of margin calls forced investors to sell shares at whatever cost. Shanghai rallied 150 percent in a year before falling 30 percent in last one month. Chinese regulator said markets were in panic mode. In a unprecedented move, more than 1300 Chinese companies (more than 40 percent of total market cap of China equity market) voluntarily suspended trading of their shares in the first ten minutes of trade.

Ruchir Sharma of Morgan Stanley told CNBC that there was no fundamental basis for massive rally in China. Market valuations in China need to correct more before they become a buying opportunity, he said.

However, European markets bucked the trend after Greek Prime Minister Alexis Tsipras said the country would come up with a concrete proposal in the next 2-3 days and one that would contain credible reforms. Meanwhile, European Stability Mechanism has received formal loan request from Greece. France's CAC, Germany's DAX and Britain's FTSE gained 0.9-1.2 percent (at 16 hours IST).

Chinese equity fall was not restricted only to equity market, but also impacted commodities market. Base metals like copper, aluminium etc hit 6-year low today, crude oil prices corrected too, but later on commodities recovered. Brent crude gained 0.9 percent at USD 57.34 a barrel and WTI crude rose half a percent to USD 52.59 a barrel. Copper was flat.

Meanwhile, the currency market also succumbed to selling pressure with the rupee falling to 63.60 a dollar against a close of 63.46 a dollar yesterday due to dollar demand and weak local equity markets.

Metals stocks hit hard following correction in base metals. The CNX Metal Index crashed 4 percent. Vedanta was the biggest loser on Sensex, down nearly 8 percent followed by Hindalco Industries and Tata Steel with a 5 percent loss.

Tata Motors also felt the heat of China's sell off, falling 6.17 percent on fears of likely slowdown in Chinese luxury car market. China market accounts for 20 percent of Jaguar Land Rover sales.

Yes Bank slumped 7.5 percent after brokerage UBS has downgraded the stock to sell and slashed target price to Rs 740 from Rs 1000 per share. One of the major concerns that the brokerage points out is the private lender's increased exposure to financially stressed companies, which is up 300 percent in three years. However, the UBS report is exaggerated and exposure to stressed companies isn't as high, said Yes Bank’s CFO and Senior Group President of Financial Markets, Rajat Monga.

Lupin was down 1.7 percent as Brazilian drug regulator ANVISA has suspended import of active ingredients produced by the pharma major used to make antibiotics, citing "unsatisfactory inputs" and deviation from good manufacturing practices (GMP).

Among others, HDFC plunged 3.5 percent followed by Infosys, HDFC Bank, ICICI Bank, ITC, SBI, M&M, Sun Pharma and Coal India with 1-3 percent loss.