Ebbing of the liquidity tide due to US Federal Reserves’ continuous tightening of monetary policy fell like a hammer on global equity markets this week. Also, markets are now feeling threatened by the domestic political narrative of loan waivers that has the potential to further deteriorate banking crises.

Key equity benchmark indices Sensex and Nifty that remained insulated from the US equity market crash for the week, gave away on Friday. The Sensex fell 690 points or 1.89 per cent to close at 35,742. The Nifty index was down 197 points or 1.82 per cent to close at 10,754.

Although a sharp fall in global crude oil prices in the past month and rupee’s retreat from the recent high levels against the dollar gave the much-needed cushion to India’s macro-economic scenario, the stock markets may not be able to sustain consensus among large foreign funds to sell stock globally, experts told BusinessLine . Sentiments globally are so dismal that not even promise of fiscal stimulus by China recent enthused traders. There was bloodbath on Wall Street as Dow ended Thursday with a loss of 1.99 per cent, the S&P 500 dived 1.58 per cent and Nasdaq closed 1.63 per cent lower. Strength in dollar may also affect gold price.

“Global meltdown in markets is not over,” said Rohit Srivastava, fund manager, BNP-Paribas Sharekhan. “Movement in US stocks and bonds is suggesting that global fund managers are fearing a deflationary scenario and the accelerated sell-off in all assets against rise in dollar. While in the US key benchmark indices look oversold and may attempt a recovery or even pass a few weeks, the rally may not sustain. Same with Sensex and Nifty in India.”

In India, the worry is now more on the political side, markets players say. After the Congress won State elections in Rajasthan, Chhattissgarh and Madhya Pradesh mainly on the plank of announcing farm-loan waiver and high support price for crops, it is feared the ruling government too would resort to such populist measures ahead of 2019 national polls. In Gujarat, the BJP-led government recently waived around ₹625 crore electricity bills of farmers and the residential units indicating of the times to come in political rate race.

“Loan waivers is a dangerous epic, suddenly dominating the economic-political scenario in India and markets are nervous,” said Deven Choksey, founder promoters, K R Choksey, Investment Managers.

The market fall on Friday was also due to derivative expiry, which will be marred by banks holidays leaving only a single full banking day between today and next Thursday.

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