Why the fall

Not just for those who keep a safe distance from stock markets but even for the regular watchers an 800-point Sensex crash on Thursday came as a jolt. The loss of money can be heart-breaking for many. Those in the government, who were quick to take credit when stocks rallied at the prospect of a pro-business PM taking charge, are now busy shifting the blame to global developments. Finance Minister Jaitley is conspicuous by his silence. A weakening rupee no longer worries Narendra Modi the way it did when he was on the road to power in Delhi. 

Global factors were at play, no doubt. Asian, European, US stocks too fell sharply after US Federal Reserve chief Janet Yellen admitted threats to the US recovery, hinted at staying the course on interest rates and stoked recession fears while presenting a monetary policy report to the Congress on February 10. Her comment — “There's always some chance of recession” — unnerved investors and triggered selloffs across the globe. Foreign institutional investors (FIIs) had been net sellers of domestic shares worth about Rs. 1,400 crore in the three sessions till Thursday. In January 2016 they had pulled out Rs 11,000 crore from Indian markets, drying up cash flows. Usually, domestic institutional investors (DIIs) step in to stem the stocks' fall but of late DII buying has been rather muted. 

There is a silver lining in the dark horizon. While much of the world is feeling the pain of oil slipping below $30 a barrel, India is the biggest beneficiary, given the 80 per cent import dependence. Even if exaggerated by a reworked GDP data, India's 7-plus per cent growth is appreciated, especially after the disappointment with China's performance. However, the voice of reason is not heard in an atmosphere of fear. Among the worst hit were bank stocks. What worries investors — and should worry the PM and the FM too — is the sharp erosion in banks' profits due to bad loan pile-ups. RBI chief Raghuram Rajan has given a timely warning: Band-aid won't do; banks require a deep surgery.