It was a bloodbath in the Indian equity market due to strong selling in algorithmic trading platforms, while continued offloading by foreign investors amid retrospective tax worries also weighed on the domestic sentiment.
The 30-share BSE index crashed 722.77 points or 2.63 per cent to 26,717.37 and the 50-share NSE index Nifty dropped 227.8 points or 2.74 per cent to 8,097.
Very strange to attribute this sell-off to algo trading. It is just longs unwinding due to important supports being breached
— lokeshwarri sk (@lokeshwarri)
May 6, 2015All BSE sectoral indices ended significantly in the red with heavy selling witnessed in capital goods, realty, power and banking counters. Among them, capital goods index was the worst-hit and was down 4.24 per cent, followed by realty 4.04 per cent, power 3.67 per cent and banking 3.66 per cent.
Except Bharti Airtel, all other 30-share Sensex constituents were in the red. Among them, BHEL was down 6.21%, ICICI Bank 4.95%, L&T 4.68%, Maruti 4.2% and NTPC 4.09%, while Bharti Airtel was up 0.8%.
Realty stocks are mostly down. Kolte Patil, Brigade Enterprises, Godrej Properties and NBCC down around 3%
— Meera Siva (@siva_meera)
Dealers said the sell-off was initially sparked by a slump in NSE index futures listed on the Singapore exchange.
The heavy selling in shares also hit bond markets, with the 10-year bond yield rising as much as 6 basis points to 7.92 per cent, the highest since December 29, 2014, according to Thomson Reuters data.
The sell-off signals the sudden bout of uncertainty gripping markets since April over the so-called minimum alternative tax (MAT) that is being demanded from some foreign investors.
After rallying since early 2014, both bonds and share indexes have wiped out their 2015 gains.
Important supports for Nifty are just below at 8,065 and 7,961. In short around 8,000.
— lokeshwarri sk (@lokeshwarri)
May 6, 2015"Nifty was already below 200-day average and today it also broke Tuesday's low which generated strong selling on algo platforms," said Nilesh Dedhia, founder of NTD Trading, which specialises in providing algorithm-based trading platforms.
Selling in NSE index futures
Traders attributed the initial falls to heavy selling in Singapore which was later followed by over Rs 900 crore ($141.7 million) worth of NSE index May futures being sold in three minutes from 9.39 a.m.
That has sparked some heavy selling in domestic shares, especially by algorithmic trades, which account for a third of the total volume on Indian cash shares and almost half of the volume in the derivatives segment, analysts said.
Bonds were also impacted in line with other global debt markets. The benchmark 10-year bond yield was up 4 basis points on the day at 7.89 percent.
Uncertainty is expected to continue given lingering concerns over MAT. Overseas investors have offloaded shares worth a net of more than $1.7 billion in the last 13 sessions, excluding the amount raised from Daiichi Sankyo's stake sale in Sun Pharmaceutical Industries.
European markets
European equity indexes rebounded in choppy trade on Wednesday as strong euro zone services data and corporate results offset a sell-off in the region's government bonds and a rise in the euro.
Shares erased early losses after surveys showed euro zone businesses started the second quarter with healthy growth as a buoyant order book again encouraged them to hire more.
The pan-European FTSEurofirst 300 index was up 0.4 per cent at 1,561.05 points at 0810 GMT after falling in five of the previous six sessions. The index is down 5.5 per cent from a 14-1/2 year high hit in April.
Asian markets
Asian stocks stumbled on Wednesday in sympathy with weak US and European markets as equities investors were spooked by a vicious sell-off in sovereign bonds globally.
MSCI's broadest index of Asia-Pacific shares outside Japan was off 0.4 per cent in early trade, led by a 1.2 per cent decline in Australia.