Don Yuan Causes HeartbreakChina's currency devaluation and fears over its economic health boiled over and scalded global markets worldwide. Souring investor view of

emerging economies added to the widespread rout as key indices from Japan to India, Europe to the US meltedRs 7-lakh cr of investor `

wealth wiped out; rupee tumbles to 2-year low of 66.64

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Panic swept the global markets two weeks after the first tremors were felt whenChina unexpectedly devalued the yuan. Indian stocks tumbled, crashing by themost in more than seven years, amid a tsunami of sell orders that started in Asia,flooded across Europe and then slammed into the US. In China itself, stocksplunged by a level last seen in 2007, crude oil fell further and commoditiesplummeted to a 16-year low. The Dow took a 1,000-point plunge at the opening.Bloomberg said more than $5 trillion of investor wealth had been wiped out due tothe drop in equities in the past two weeks across the world.

While the rupee slid to a two-year low on Monday , stock market investors in Indialost . 7 lakh crore in the biggest single-day loss in ` market capitalisation. The Sensexplunged 1,624 points, or 5.94%, to 25,741.56, its sharpest intraday drop since June2009. The Nifty plunged 490 points, or plunged 490 points, or 5.92%, to end at7,809, its heaviest intraday slump since October 2008.

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The NSE Index VIX, which measures volatility, clocked a record intraday gainof 64% to 28.13, reflecting extreme global nervousness about the ability ofthe Chinese government to prevent a slowdown that could inflict severedamage on many economies around the world.

As investors counted their losses on Monday evening, Prime MinisterNarendra Modi led a high-level review of the situation. He favoured pushingahead with ongoing reforms and suggested consultation with stakeholders tochalk out the agenda for future. The government ruled out any immediatepackage. The meeting was attended by Finance Minister Arun Jaitley,Minister of State for Finance Jayant Sinha and senior officials of the ministry.

Earlier in the day, Jaitley and Reserve Bank Governor Raghuram Rajan soughtto calm jittery investors.

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Jaitley said the rout was “transient and temporary in nature“ and had littlerelation to India. “The factors responsible for this are entirely external,“ hesaid in Delhi. “There is not a single domestic factor in India which has eithercontributed to it or added to it,“ Jaitley said.Rajan said India's macroeconomic underpinnings were sound and that itsreserves could be deployed to protect the currency .“India is better placed compared to other countries with low current accountdeficit, and fiscal deficit discipline, moderate inflation, low shortterm foreigncurrency liabilities, very sizeable base of forex reserves,“ he said. “We willhave no hesitation in using our reserves when appropriate to reducevolatility in the rupee.“The rupee weakened to 66.64 against the dollar, its lowest since September2013. India's foreign exchange reserves are at a record $355 billion.

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Finance Secretary Rajiv Mehrishi told ET NOW that India would takemeasures, if these were needed, in a calibrated manner.

“Since India's fundamentals are strong, the situation is not alarming,“he said. “The primary response has to come from the central bank. Ithink they look at the currency position and see what they have to do.The policy response from us will have to be more calibrated andcalculated. We may need to take several steps at several fronts. At thispoint it is enough to say that the government will take such steps whichare necessary.“

LATE RECOVERY IN US

In the US, stocks recovered helped by a turnaround in Apple's shares aftercrashing across the board as the market opened with Google, Amazon,General Electric and Microsoft among those sliding, Bloomberg reported. At11.55pm (India time), the S&P 500 was down -2.74% at 1,916.29 in NewYork. The gauge pared a drop of as much as 5.3%. The Dow Jones IndustrialAverage was down 402.6 points, or 2.45%, at 16,057.15. It had lost 669.73points, or 4.1%, during opening trade -its steepest drop since November2011. Nasdaq Composite was down 115.59 points, or 2.45%, at 4,590.45.Earlier in the day, the Shanghai Composite Index posted its biggest one-daypercentage loss since 2007, closing 8.5% lower.In India, foreign institutional investors (FIIs) sold stocks worth Rs 5,275 croreon Monday . In the past four trading sessions, they have sold shares worthabout Rs 9,000 crore. Domestic institutional investors (DIIs) bought sharesworth Rs 4,097 crore on Monday .

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“Nobody anticipated this drop on Monday,“ said Motilal Oswal, chairman &managing director of Motilal Oswal Financial Services. “The markets maytake some time to stabilise.

Reports of margin call pressure and foreign fund selling made things worse.However, one should remember that our macroeconomic fundamentalscontinue to remain strong. I see very good opportunities to buy for mediumto long term.“

Veteran investor Jim Rogers said it was important to know when to get backinto the market. “Markets around the world are collapsing -September,October are usually very bad times in financial markets and this year is goingto be very bad,“ he said. “So many things will go down artificially, at whichpoint one should buy, whether it's oil or shares.“

FUTURE UPBEAT FOR INDIA

But the future appears upbeat for In dia, feel some experts.

“In the short term, it is hard for any country to differentiate itself...Over the longer term,however, stronger fundamental economies such as India have the potential to bounce backmore quickly and outperform,“ Allianz's Chief Economic Adviser Mo hamed El-Erian told ETNOW.

On Monday, the CNX Midcap Index dropped 8.77%, its biggest intraday fall since 2008.

“It's difficult to measure the current crisis in Chinese stock markets and its impact on globalequities,“ said S Na ren, chief investment officer, ICICI Prudential Mutual Fund. “We believethe commodity exporters will be the worst hit in this decline. However, we would like tosuggest that fixed-in come and long-term equity investing provide good opportunities.“

“It's not a good situation for markets; there is reasonable pain ahead of us,“ said ShankarSharma, vice-chairman & joint managing director, First Glob al. “Things have gone beyondbeing called a phase of correction.“

MARGIN CALL PRESSURE

Some influential traders faced mar gin call pressure after the Nifty brokecrucial technical support levels of 8200, 8000 and 7800, accentuating themarket decline. Margin calls were triggered after brokers failed to col lectmoney from clients who had taken leveraged positions on stocks with expectations that markets would go higher.

“The trend line for markets has turned negative after Nifty broke crucialsupport levels of 8,080 and 7,940. The next support level for the index isseen at 7,700,“ said Dharmesh Shah, head of technicals at ICICI Securities.“The Nifty's 200-day moving average of 8458, which was the previoussupport level, has now turned the resistance level for the index.“

Rajan seemed to indicate that the current strife wouldn't have any bear ingon interest rates.

“Rate cuts should not be seen as goodies that RBI gives out stingilyafter much public pleading,“ he said. “In stead, what is important issustained low inflation, something the prime minister emphasised inhis Independence Day speech, and rate cuts are a natural consequencethat RBI has no hesitancy in delivering.“

RBI's next monetary policy announcement is scheduled for September29 although there have been calls for a cut before that given thecooling down of inflation and uncertainty about economic revival.

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