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Business

Mayhem in stock markets

Oommen A. Ninan

Sensex crashes 1408 points on global cues

Metal, realty, oil and gas, power,
automobile stocks take a hit
Sub-prime credit shakeout hits
global financial institutions

MUMBAI: Mirroring the weakness of the global markets, in a dramatic turn, the domestic stock market crumbled by 1408.35 points, recording the sharpest ever fall in the history of Indian equity market. Stocks of metal, realty, oil and gas, power, public sector units and automobile, triggered Monday’s fall, which was broad-based.

The Bombay Stock Exchange (BSE) halted trading for a brief period as the BSE 30-share sensitive index (Sensex) slumped by more than 2000 points (or more than 10 per cent) in intraday. However, it recovered and limited the fall to 7.41 per cent or 1408.35 points and closed at 17605.35.

Rude shock

Monday’s fall was a rude shock to retail investors. This fall occurred at a time when retail investors flocked the counters of bluest of the blue-chip companies, after fearfully witnessing a rise of Sensex from 10000 to 21000-mark. Last few months have seen a galloping rally. Foreign institutional investors (FIIs) were selling and retail investors were buying.

However, this party has come to an end due to global factors and over-stretched valuations. The market will be in a consolidation mode for the next few months, said Sunil Shah, a market analyst.

U.S. crisis

Ripples of the sub-prime credit shakeout in the U.S. have hit many major global financial institutions and it eroded their valuations. Sub-prime credit is a high-interest, high-risk debt given to those with poor credit records or ratings.

The rising number of defaults in the U.S. sub-prime market has hurt the U.S. stock markets and in turn, driven down other global and emerging market indices, including India’s despite good economic growth. This also proved a point that India was no more insulated from global shocks, which was reminded by the Reserve Bank of India (RBI) in the last few months.

There was panic selling due to weakness in emerging markets, said Motilal Oswal of Motilal Oswal Securities. He also said that liquidity was sucked out of the system due to various IPOs. However, Mr. Oswal said “I strongly feel that this fall brings an opportunity for investors.”

“Investors with a medium-to-long-term view have nothing to worry about as the fundamentals underpinning the market rally in Indian markets remain intact. One can consider additional allocations at lower market levels and the best way to deal with stock market volatility is to invest systematically,” said Sukumar Rajah, Chief Investment Officer, Equity, Franklin Templeton Investments.

The fall was broad-based: the BSE Midcap index lost 1011.72 points or 11.38 per cent at 7881.99; Smallcap 1248.79 points or 10.27 per cent; and the BSE 500 777.57 points or 9.75 per cent at 7195.23.

Among the major sectoral indices: Metal lost 13.80 per cent; realty 12.83 per cent; Oil and gas 11.95 per cent; Power 10.94 per cent; PSU 10.67 per cent; and automobile 9.39 per cent.

Even the IT sector index, which was saving the major indices like Sensex were plunging in the last few weeks, lost 5.73 per cent.

Weakness on bourses was witnessed from last week itself. The Sensex closed last week at 19013.7, a loss of 8.7 per cent over the previous week’s close.

FIIs were net sellers in equities to the tune of Rs. 3,950 crore and mutual funds Rs. 769 crore as on January 17.

Even the strong quarterly results posted by companies could not boost market sentiment, as investors went on a selling spree, stated Dun & Bradstreet India in its weekly report. In this period, all major global markets too witnessed heavy sell-off.

Sharpest fall

Before this fall, the market witnessed the second highest fall on May 18, 2006, when the Sensex dipped by 826 points or 6.76 per cent due to weakness in global markets and heavy selling by FIIs on account of Governments decision to tax investment gains.

As soon as the UPA came to power at the Centre in the last general elections, the Sensex lost 565 points on May 17, 2004, as some interested parties triggered a panic button, pulling equities down. It also lost 570 points or 12.77 per cent on April 28, 1992, when the late Harshad Mehta-led scam was unearthed by investigating agencies.

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