The Hindu : Business : Sensex plunges by over 500 points

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Saturday, Jun 21, 2008
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Business

Sensex plunges by over 500 points

Special Correspondent

Oil and gas, realty, metal sectors lead the fall

‘Interest rate
hike is round
the corner’
ONGC is the lone gainer in index stocks

MUMBAI: Panic gripped domestic stock market and the Bombay Stock Exchange 30-share sensitive index (Sensex) tanked more than 500 points on rising inflation. “While the markets were prepared for a higher inflation, they were not prepared for the 11.05 per cent, which was ultimately reported. The markets, therefore, had to fall in tandem with the numbers,” said V. K. Sharma, Whole-time Director and Head of Research, Anagram Stockbroking. This fall brought down the Sensex to a one-month low of 14571.29, losing 516.70 points or 3.42 per cent. It shed 610 points in the past two trading sessions. The Sensex touched a low of 14159.27 and a high of 15202.01 during the day.

On the National Stock Exchange (NSE), the 50-share Nifty lost 156.70 points at 4347.55. It touched a low of 4333.60 and a high of 4532.

“The markets have been understandably spooked by the higher than expected inflation number and investors now seem worried about continued tightening [of monetary measures] by the RBI. Headline WPI (wholesale price index) will likely remain high for the next 4-5 months and a policy rate hike is round the corner,” said Nirmal Jain, Chairman, India Infoline.

Selling in index heavyweights Reliance Industries (the share fell by 6.61 per cent), Reliance Communications (6.65 per cent) and Tata Steel saw the Sensex extend its losses. Hindalco also dropped by 6.5 per cent. However, ONGC gained 1.5 per cent and was the only gainer among the index stocks.

Among sectoral indices, oil and gas led the fall with a loss of 5.03 per cent, followed by realty, metal, tech and bankex. “From a fundamental perspective, the rising yield of the bonds indicates that banks will have to take marked to market losses on their investment portfolios. Banking and real estate stocks will take a further beating,” Mr. Sharma added.

“The news flow on the macro side has been continuously worsening for the past few months and in our view, expectations of a slower growth, widening current account deficit, and a deceleration in savings growth is largely priced in,” said Mr. Jain. However, he believes that the wild card remains. If oil prices come off even to $100 a barrel level, then much of the macro fears will at least temporarily dissipate.

“Technically, there are lot of shorts in the system, and all we need is a dose of good news for a short-squeeze to happen. Given the changing economic environment, we do see significant divergence in the performance of individual companies, and from a risk-adjusted return perspective, investors who buy into good quality names will do well over a 1-2 year perspective,” Mr. Jain added.

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