Indices fall 1% on China demand, Fed policy worries

Also weighing on the markets is the uncertainty ahead of the outcome of the US Federal Reserve’s monetary meeting on Wednesday wherein the central bank’s commentary on the timeline of the taper of its bond purchases will be watched.

“Market was running fast and it needed a catalyst for correction, we moved from 15,000 to 17,500 very quickly. The Evergrande default is becoming that catalyst for a correction in the market but we don’t know what will be the impact of the crisis,” said Nilesh Shah, managing director at Kotak AMC.

The Sensex ended down 524.96 points or 0.89% at 58,490.93 and Nifty ended down 188.25 points or 1.1% to close at 17,396.90. Metals led the sell-off with the metal index plunging almost 7%. Other Asian markets also declined with Hong Kong dropping 3.3%, Indonesia 0.9% and Taiwan ending marginally lower.

Shah said India’s fundamentals remain in good shape and will avoid a big crash. “It may be China’s Lehman moment but it is not a subprime crisis where one will see a withdrawal of liquidity from the Indian market,” he said.

Sensex had hit an all-time high of 59,737.32 on Friday while Nifty hit a lifetime high of 17,792.95. Indices have gained about 11% since August.

“While Indian equities have done well this year being the best performing market regionally prompting overheating concerns, we stay overweight on expectations of a strong cyclical recovery and supportive flows,” said Goldman Sachs in a note to clients. “Additionally, the strong thematic appeal and growth potential of the new economy sectors lend support to our medium-term constructive view.”

India VIX ended up for the fourth straight day. The volatility gauge, which measures near-term risk perception, surged nearly 15% to close at 17.49. “Rising volatility with falling put-call ratio indicates short-term weakness,” said Chandan Taparia, derivative analyst at Motilal Oswal.

Tata Steel ended as the biggest casualty on the Sensex, down 9.5% followed by SBI which slid 3.7%. IndusInd, HDFC and Dr Reddy’s fell 2.3-3.5%. FMCG shares gained, with HUL rising nearly 3% to end as the top gainer.