The Hindu : Business : Sensex dives 643 points on global meltdown

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Friday, Aug 17, 2007
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Sensex dives 643 points on global meltdown

Special Correspondent

U.S. sub-prime market problem looms large

PHOTO: AP

THE DEBACLE: A broker reacts to the sharp fall in the stock market in Mumbai on Thursday. Fears of a global credit squeeze spooked the markets, sending the benchmark Sensex into a 642-point (four per cent) tailspin and erasing Rs. 1.7 lakh crore of investors' wealth as foreign funds looked for safer havens to evade the possible spread of U.S. sub-prime mortgage crisis. This is the biggest fall this fiscal and the second biggest ever in absolute value terms.

MUMBAI: Amid mounting concerns over the ramifications of the sub-prime (home) mortgage market crunch in the U.S., stock markets in India suffered a severe setback as the benchmark Bombay Stock Exchange 30-share sensitive index (Sensex) lost 642.70 points. This was the biggest single day fall since May 18, 2006 (826.38 points).

Among Asian markets, South Korea’s Seoul Composite Index tumbled by nearly seven per cent. The Sensex settled near the days low on intense selling pressure throughout the day. It opened at 14584.92, the highest level of the day, and touched a low of 14345.03 before closing at 14358.21 from the previous close of 15000.91. On the National Stock Exchange, the 50-share Nifty lost 191.60 points to close at 4178.60.

“Basically, the sub-prime problem is looming large in investors’ minds globally. If you see the volatility index it is at an all-time high. Emerging markets spread has increased and Japanese yen is also at an all-time high against the U.S. dollar. These indicate risk aversion to emerging market assets and squeeze on global liquidity,” said Amitabh Chakraborty, President Equity, Religare.

According to him, although India is not directly exposed to U.S. sub-prime assets, there would be some pull out of hedge fund money from profitable asset class (that is, global funds would sell their assets (gains) in India to adjust their assets (losses) elsewhere).

In this uncertain environment retail investors would be better off reducing leverage and taking profits and raise the cash level to the extent of 20-25 per cent. So that quality stocks could be bought at lower levels, he added.

Heavy selling

All the Asian and European markets also came under the grip of heavy selling pressure on concerns of global credit markets. China’s Shanghai composite Index was down by 2.14 per cent at 4765.48, Hong Kong’s Hang Seng by 3.29 per cent at 20672.39, Japans Nikkei by 1.99 per cent at 16149.49, Taiwan Weighted by 4.56 per cent at 8201.37, Singapore’s Straits Times by 3.70 per cent at 3152.16 and Seoul Composite by 6.93 per cent at 1691.98. Japan’s Nikkei 225 index fell below the 16000-mark, the first time since November last.

European stock indices dropped in early trade with Britain’s FTSE, France’s CAC-40 and Germany’s DAX all down by around two per cent. Shares in the U.S. tumbled on Wednesday after the Federal Reserve pumped more cash into the banking system but failed to quash investors’ jitters about problems in the lending market.

All the sectoral indices on the BSE closed with losses. Among them, BSE Realty index lost 5.56 per cent. The total turnover on the BSE was Rs. 5,646.63 crore as compared to Tuesday’s Rs. 4,232.40 crore.

As per the provisional data, on August 14, foreign institutional investors (FIIs) sold shares worth Rs. 331.52 crore (net), while domestic institutional investors, including mutual funds, were net buyers of shares worth Rs. 308.94 crore.

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