Investors’ wealth erodes by Rs 3.46 lakh cr

NEW DELHI: Investors’ wealth eroded by Rs 3.46 lakh crore on Wednesday as equity markets took a sharp tumble amid weak global trends and foreign fund outflows.

The 30-share BSE Sensex fell by 676.53 points or 1.02 per cent to settle at 65,782.78. During the day, it plunged 1,027.63 points or 1.54 per cent to 65,431.68.

In line with the weak trend in equities, the market capitalisation of BSE-listed firms eroded by Rs 3,46,947.54 crore to Rs 3,03,33,258.69 crore. “After the euphoric June and July, we are witnessing some healthy corrections today in Indian markets, due to the downgrade of the US rating by Fitch. Frankly, the market was waiting for some reason to correct in the last few days as it was in an extremely over-bought zone, and it found its reason. The impact on the Indian market should also be short-lived, soon focus will come back on earnings, infra investments, and fund flows,” said Vikram Kasat, Head Advisory at Prabhudas Lilladher.

“The Indian market witnessed a broad sectoral slide, affected by weak global market trends. Negative news regarding the US rating downgrade on fiscal concerns, coupled with weak factory activity data from Eurozone and China, led to widespread worries across the globe. Additionally, prolonged FII selling, triggered by a rise in US bond yields, has disrupted the mood of the domestic market,” said Vinod Nair, Head of Research at Geojit Financial Services. From the Sensex pack, Tata Steel declined 3.45 per cent, followed by Tata Motors 3.19 per cent. Bajaj Finserv, NTPC, State Bank of India, JSW Steel, Larsen & Toubro and Bharti Airtel were among the other major laggards. Nestle, Hindustan Unilever, Asian Paints, Tech Mahindra and UltraTech Cement were the gainers.

In the broader market, the BSE midcap gauge fell by 1.39 per cent and smallcap index declined 1.18 per cent.

All indices ended lower with metal tumbling 2.45 per cent, utilities falling by 2.32 per cent, power (2.31 per cent), telecommunication (2 per cent), capital goods (1.83 per cent), auto (1.52 per cent), oil & gas (1.47 per cent), industrials (1.46 per cent), financial services (1.33 per cent) and commodities (1.22 per cent).

“A sharp sell-off in Asian and European markets gave investors a reason to encash on the recent upsurge. FIIs seem to have sold off local equities after the record rally last month,” said Shrikant Chouhan, Head of Research (Retail), Kotak Securities Ltd. A total of 2,353 stocks declined while 1,240 advanced and 139 remained unchanged.

In Asian markets, Seoul, Tokyo, Shanghai and Hong Kong ended lower. European markets were trading in the red. The US markets ended mostly in the negative territory on Tuesday. Foreign Institutional Investors (FIIs) offloaded equities worth Rs 92.85 crore on Tuesday, according to exchange data.

Fitch downgrades credit rating of US govt to AA+

Fitch Ratings has downgraded the US government’s credit rating, citing rising debt at the federal, state, and local levels and a “steady deterioration in standards of governance” over the past two decades.

The rating was cut Tuesday one notch to AA+ from AAA, the highest possible rating. The new rating is still well into investment grade. The decision illustrates one way that growing political polarisation and repeated Washington stand-offs over spending and taxes could end up costing US taxpayers. A lower credit rating, over time, could raise borrowing costs for the US government.

It’s only the second time in the nation’s history that its credit rating has been cut. In 2011, the ratings agency Standard and Poor’s stripped the US of its prize AAA rating after a prolonged fight over the government’s borrowing limit. The Government Accountability Office, in a 2012 report, estimated that the 2011 budget standoff raised Treasury’s borrowing costs by $1.3 billion that year. At the same time, the huge size of the US economy and historic stability of the federal government has kept its borrowing costs low. Global investors often flock to US Treasury securities during periods of economic turmoil, lowering the interest rate paid by the US government. Fitch had warned May 24 that it could remove the government’s triple-A rating as Congress again struggled to raise the borrowing limit. A deal was reached nearly a week later that suspended the limit and cut about $1.5 trillion from the government deficit over the next decade. Fitch cited the worsening political divisions around spending and tax policy as a key reason for its decision. It said US governance has declined relative to other highly rated countries and it noted “repeated debt limit stand-offs and last-minute resolutions.”