Indian shares fell nearly 2% yesterday, posting their biggest single-day percentage drop since the Brexit vote, in a global sell-off on renewed talks that the US Federal Reserve might be serious about raising interest rates as early as next week.
The BSE Sensex tanked 443.71 points to end at 28,353.54 yesterday.
Also, weighing on sentiment was reports that the Bank of Japan was considering ways to steepen the Japanese yield curve, along with worries that central banks more generally were running short of fresh stimulus options.
Reflecting the caution, Asian shares suffered their sharpest setback since June with MSCI’s broadest index of Asia-Pacific shares outside Japan falling 2.2%, pulling away from a 13-month peak hit last week.
Some Fed officials have been trying to convince markets that the September meeting would be “live” for a hike, even though futures only imply a one-in-four chance of a move.
“The main trigger for today’s fall comes from the Fed comments made on Friday on the increased probability of a rate hike. Markets also remain heated from last week’s reports of a nuclear test in North Korea,” said Neeraj Dewan, director at Quantum Securities, adding that he expected the market volatility to continue until the Fed decision.
The NSE volatility index, a key gauge to measure investors’ fear, rose as much as 13.9% to its highest since August 10.
Investors also await the August consumer price inflation data expected later in the day for clues about the economy.
Both the indexes posted their worst intraday fall since Britain voted on 24 June to leave the European Union.
Indian stock markets will be closed today for a public holiday.
Banking shares took the maximum hit with the Nifty bank index among the leading losers, posting its biggest intraday percentage fall since June 24. The sector had gained about 5.5% in the last two weeks.
Among banks, State Bank of India fell 2.6%, Punjab National Bank declined 2.6% and ICICI Bank dropped 3.3%.
Welspun India fell as much as 4.9% after US retailer Wal-Mart said it stopped selling the Indian firm’s Egyptian cotton products as it was unable to assure them the products were authentic.
Tata Steel fell 3.7% ahead of its June-quarter results later in the day.
Meanwhile the rupee yesterday weakened for the third consecutive session and closed at over a one-week low against the US dollar, tracking the sell-off in global markets.
The home currency closed at 66.92 per dollar—a level last seen on September 1, down 0.37% from its previous close of 66.68. The rupee opened at 66.92 per dollar and touched a low of 66.96, a level last seen on September 1.
A global sell-off in stocks, currencies, commodities and bonds was seen amid concern that central banks in the world’s biggest economies are questioning the benefits of a loose monetary policy.
Malaysian ringgit was down 1.46%, South Korean won 1.35%, Indonesian rupiah 0.97%, Philippines peso 0.76%, Taiwan dollar 0.68%, Singapore dollar 0.26%.
However, Japanese yen was up 0.76%, China renminbi 0.07%.
Yield on 6.97% 2026 bond, which is the new 10-year debt, closed at 6.846% from its previous close of 6.833%. Bond yields and prices move in opposite directions.
Consumer price index-based inflation rate fell to 5.05% in August from 6.07% in July as food prices stabilised while the index of industrial production (IIP) growth contracted 2.4% to from 1.95% in June as manufacturing output fell 3.4%, data showed. Wholesale price index (WPI) inflation data for August is due on September 14.
The median forecast from a Reuters poll of 27 economists pegs it at 5.50% for August, down from 6.07% in July. In contrast to the slowdown in consumer inflation, economists in the poll predicted WPI to have picked up to 4.01% in August from 3.55% in July.
The poll also showed that annual growth in industrial output was expected to decelerate to 1.7% in July from June’s eight-month high of 2.1%, due to slower pace of expansion for electricity generation and mining.
The rupee is down 1.15% till date this year, while foreign institutional investors (FIIs) have bought $6.4bn in equity and sold $609.53mn in debt markets.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 95.32, down 0.03% from its previous close of 95.336.