Sensex Tanks Over 1,200 Points in 3rd Biggest Crash in History:

The Sensex crashed 1,210 points to 26,155 at its day’s low, while the 50-share Nifty slipped below the crucial 8,000 levels for the first time in two months. All 50 shares in the Nifty traded in the red, while on the broader BSE 500 index, just five stocks traded higher.

The rupee has weakened from 64 per dollar to nearly 66.67, a fall of over 4 per cent since August 11 when China announced the devaluation of its yuan currency.

Reserve Bank of India Governor Raghuram Rajan on Monday said that India is better off than among emerging market countries. The macro-economic problems are under control, low inflation will give investors trust in markets, he said.

To soothe investor sentiments, Dr Rajan said the central bank will not hesitate to use reserves to reduce the volatility in currency. (Also read: As Rupee Sinks to 66.67, Raghuram Rajan Promises RBI Will Intervene)

The trigger for Monday’s carnage is the rout in Chinese equities. Shanghai shares dived nearly 9 per cent – their biggest single-day percentage loss since 2007 – wiping out their gains for the year.

The selloff in China markets weighted on risk assets across the globe. Asian stocks dived to 3-year lows while European markets were down nearly 3 per cent in early trade. Copper, seen as a barometer of global demand, tumbled to 6-1/2-year lows as the anxiety over China sapped investor confidence. (Read: Chinese Shares Plunge Nearly 9%)

This the third straight day of big selloff in Indian stock markets. The widespread unrest in markets was set in motion nearly two weeks ago when China sharply devalued the yuan and stoked concerns about the state of its economy. There are fears that China could be forced to devalue the yuan even more should its economy falter further.

The devaluation in the yuan has impacted most emerging market currencies and stoked fears about a currency war. South Africa’s rand struggled at 14-year lows, the Turkish lira languished near a record low, while the Malaysian ringgit hit a 17-year low.

The depreciation in the rupee hits foreign investors and diminishes their returns. Analysts say foreign funds have started selling shares aggressively because of the rupee fall. On Friday they sold shares worth Rs. 2,340 crore, which is the biggest selling since April 2015.

Domestic markets are also likely to face liquidity issues because of the 10 per cent stake sale in state-run refiner Indian Oil Corp. The floor price for the share sale is Rs. 387, a 2 per cent discount from Friday’s close. At the floor price, the 10 per cent stake sale in the company will bring in Rs. 9,396 crore for the government. According to the latest data, the Indian Oil offer for sale (OFS) was subscribed 57 per cent.