Global mkts feel the heat; Sensex down 3%

Global financial markets were rattled after the Dubai government sought a six-month moratorium from creditors of Dubai World's debt, totalling $59 billion. Mirroring a fall in the Asian markets, Indian equity indices also witnessed a steep fall in intra-day, with the 30-share Sensex (^BSESN : 16031.22 -10.96) of the Bombay Stock Exchange (BSE) plunging over 600 points, or 3.5%, after heavy sell-off in banking, realty and infrastructure stocks. However, the markets soon regained momentum on the back of short covering, along with fresh buying in index heavy weights, helping the domestic equity indices to limit their losses.

The Sensex finally ended the day at 16,632.011, down by 222.92 points, or 1.32%, while the broader 50-share Nifty (^NSEI : 4779.5 -13.15) of the National Stock Exchange (NSE) ended the trading session at 4,971.75 points, down 1.27% or 63.80 points. Nikkei 225 fell 3.22% to hit a four-month closing low, while Hang Seng and Shanghai Composite dipped 4.84% and 2.36%, respectively, on Friday.

Experts said the request for a moratorium on its debt payment by a sovereign government has once gain shaken the confidence of global financial markets, causing risk aversion from global investors that could lead to unwinding of dollar carry trade, which was one of the prime factors for a strong rally in the emerging markets equities.

"Development from Dubai has shaken up confidence with respect to liquidity," said Sanjeev Patni, head-institutional equity, Centrum Broking.

Vipul Dalal, director, business development at UK headquartered Elara Capital, said though the crisis is not as severe as it was initially, it has definitely impacted the sentiments in the financial markets. "This will have a larger impact on the credit markets as there is a possibility of sovereign downgrade causing a decrease in risk appetite and risk aversion. This was clearly visible with the rise in dollar, gold and crude oil pointing to funds' flight back to safety". Ashutosh Datar, strategy analyst at IIFL, the institutional equity arm of India Infoline, said, "While in the near term, risk appetite might wane and capital might flow towards safe haven assets like US treasuries, once the dust settles, the medium-term story of capital flows into emerging markets will continue due to their robust fundamentals."