The BSE Sensex extended losses to 250 points and hit a low of 20,399, while the Nifty slipped below the key 6,050 levels on Thursday amid a global selloff in risk assets. The Indian rupee traded at 62.73 after falling to 62.90 per dollar.
US Federal Reserve's decision to cut its monthly bond purchases by $10 billion, starting in February, triggered a collapse across global markets overnight. The Dow Jones average closed down 189 points, partly on earnings disappointment from big US companies. (Read the full story here)
Many global investors fear that reduced Fed bond buying will raise US interest rates and cause investors to move money out of emerging markets and into the United States for higher returns.
Indian markets are dependent on foreign institutional investors for liquidity. FIIs invested $20 billion in India last year and close to $500 million in January.
Phani Sekhar of Angel Broking told NDTV that foreign fund flows are under question. Independent market analyst Saumil Trivedi said markets are decisively weak after falling below 6,100 and targets of 5,900-5,700 are possible now.
Finance Minister P. Chidambaram said the government will take whatever steps are necessary to ensure stability in financial markets. The government and Reserve Bank of India will continue to remain vigilant over the situation, he added. (Read the full statement)
Banking stocks were hammered down, with the Bank Nifty falling as much as 2 per cent to its lowest since October. The index is now heading towards a sixth consecutive losing session.
ICICI Bank on Wednesday said it saw the amount of corporate defaults rising in coming quarters as borrowers succumb to the pressures of a sluggish economy. This does not augur well for big state-run banks, whose assets are always under scanner. As of 11.45 a.m., ICICI Bank traded 2 per cent lower, while HDFC Bank fell 1.8 per cent.
Adding insult to injury, a measure of Chinese manufacturing slipped to a six month low for January and gave speculators a fresh excuse to target risk assets. Japan's Nikkei fell over 500 points in trade today, eventually closing down 377 points or 2.45 per cent lower. (Read the full story here)
(With inputs from Reuters)
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