Indian stock benchmarks saw sudden plunge in late afternoon trade on Wednesday, weighed down by fresh worries over global trade after China announced additional tariffs of 25% on 106 US goods. The Sensex closed 352 points lower at 33,019, while Nifty closed 117 points lower at 10,128.
From the high point of the day, the BSE benchmark Sensex plunged 533 points.
Here’s a look at the key factors that dragged the market lower.
China’s retaliation tariff plans.
China will impose additional tariffs of 25 per cent on 106 US products including soybeans, autos and chemicals.
China will announce the effective date for the new tariffs at a later time, Reuters reported citing China’s state broadcaster CCTV said.
US President Donald Trump last month signed an order imposing levies on Chinese goods worth of up to $60 billion, creating havoc in financial markets worldwide.
Gaurav Dua, head of research at Sharekhan said, “Disruption in global trade led by the imposition of tariff barriers is lose-lose situation for all and consequently would result in increased volatility in financial markets globally and India is no exception.
Consequently, we advise investing in carefully chosen select large-cap and quality midcap stocks.”
Nifty unlikely to top 11,000 again in 2018
Lingering macro concerns of India are likely to impact returns of the stock market, with the Nifty unlikely to cross 11000 in the rest of the calendar year 2018, said CLSA.
“At 16.9 times Mar’19 (2019) consensus estimates, Nifty is still at a 14% premium to the 10-yr avg (average). While the valuations have become more moderate, we believe the adverse macro will continue to weigh on market returns,” said CLSA’s India Strategist Mahesh Nandurkar in a note on Tuesday.
RBI policy meet
Investors were jittery ahead of first bimonthly monetary policy meet of FY19 that started on Wednesday.
The central bank is likely to go for a status quo in policy rates on a cool-off in inflation.
“We expect the MPC (monetary policy committee) to keep policy rates on hold and maintain its neutral stance,” analysts at American brokerage Morgan Stanley said in a note.
Its rival Bank of America Merill Lynch (BofAML) also seemed to be echoing the same view, but added that it expects a rate cut in the August review if the monsoons are favourable.
Fears of a trade war between the world’s top two economies weighed on Asian stocks on Wednesday, with several major markets closing in the red despite a recovery on Wall Street.
Markets in Japan and Australia clung on to marginal gains but China, Hong Kong and South Korea dipped into the red, delivering a mixed picture across the region.
China’s main market, the Shanghai Composite Index, closed down 0.15 percent to end the day at 3,131.84 points, erasing some healthy gains earlier in the session.