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Stock markets around the world plummet; Its a correction, say analysts

Tuesday February 6, 2018 11:08 PM, & Agencies

Bombay Stock Exchange

The stock market on Tuesday closed on a grim note with the BSE Sensex showing a fall of 1.61% i.e. 561 points and Nifty falling by 168 points, or 1.58%. At the time of closing, Sensex was at 34,195 and Nifty was at 10,498 points.

Post the Union Budget on February 1, the 30-share index has plummeted by 2,164.11 points. Tthe downslide continued wiping out nearly 10 lakh crore from investor wealth in the last six days.

Rs 2.7 lakh crore of wealth was wiped out in today’s session itself, amid sell-off in world stocks.

Investor sentiment has remained sluggish after the government announced in the Budget a proposal to levy 10% long-term capital gains (LTCG) tax on equities and projected a fiscal deficit of 3.5 per cent of GDP for 2017-18.

Today's fall comes on the back of a spike in bonds yields. According to reports, strong prospects of the Fed hiking interest rates in the next month has led to a spike in US bond yields, which touched 2.89%, highest level in nearly four years.

US stocks saw their biggest one-day fall in six years on Monday, as investor profit taking brought the market back down from record highs seen in late January, after benchmark bond yields rose to a four year high last week.

According to Reuters, the Indian rupee fell in early trade, though retreated to 64.24/25 from Monday’s close of 64.07. But bonds gained as investors sought safe havens. The benchmark 10-year bond yield was down 3 basis points at 7.57 percent, after last week posting its biggest weekly decrease since February 2017.

The rout in global equities deepened in Asia as inflation worries gripped financial markets, sending US stock futures sinking further into the red after Wall Street suffered its biggest decline since 2011.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan slid 3.4%. Taiwan shares lost 5%, its biggest since in 2011 and Hong Kong’s Hang Seng Index dropped 4.2%. Japan’s Nikkei dived 4.7%, its worst fall since November 2016, to four-month lows.

The dramatic fall in stock prices on Wall Street that has spooked equity markets around the world on Tuesday is making investors nervous that this could be the start of a new stock market crash.

But the underlying strength of the global economy seems to suggest that the sell-off might actually be just a temporary -- but long overdue -- correction to a more or less uninterrupted market rally since Donald Trump was elected US President in late 2016., according to AFP.

We can say it's a correction, but I don't believe we're witnessing large-scale panic," said Jean-Laurent Bonnafe, head of BNP Paribas at the bank's annual news conference.

For many analysts, the current bout of selling fever is primarily a matter of "market psychology", said Christopher Dembik, chief economist at Saxo Banque.

Meanwhile, fears are rising the Reserve Bank of India could become more hawkish as inflation accelerates and the government raises investments in rural sectors and healthcare.

The RBI is set to conclude its two-day policy meeting on Wednesday and is expected to leave rates on hold but could issue stronger warnings about inflation.


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