Sensex slips to almost 10k, then claws back

FIIs Get Flexibility In Bond Investment

INDIAN stock market investors were caught in a hedge fund backlash on Thursday. While interest rates softened in the inter-bank overnight borrowing market after Wednesday's liquidity injections, selling by foreign institutional investors (FIIs) almost pushed the Sensex below the psychological 10,000-mark. The rupee touched an intra-day low of 49.05 against the dollar before closing at 48.82.
Though it has not helped so far, regulators are trying every possible method to attract foreign investment. After doubling the amount FIIs can invest in corporate bonds, Sebi on Thursday relaxed the rule that required FIIs to invest 70% in shares for investing 30% in bonds. Now, FIIs who have sold the shares, will not be forced to offload their bonds to stick to the ratio. Also, an FII bearish
    on stocks can freely invest in bonds.
    Meanwhile on Thursday, a cash-strapped hedge fund, with a huge exposure to a handful of index heavyweights, is said to have dumped huge chunks of Reliance Industries (RIL) shares, sending the stock crashing to an 18-month low of Rs 1,327 intra-day. RIL finally ended the day at Rs 1,397.25, down 8% over the previous close, and weighed heavily on the index even as the overall market pared intra-day losses sharply. Recession fears loom large over market
    PROVISIONAL data revealed that FIIs net sold Rs 1,130 crore worth of shares on Thursday. The Sensex slumped to a 27-month low of 10,017.80 intra-day before inching up to 10,581.49 at close, down 227.63 points over the previous close. The 50-share Nifty closed at 3,269.30, down 69.10 points over the previous close. Markets in Asia and Europe continued their slide on Thursday as the spectre of a global recession loomed large.
    A nervous US market was trading 116 points down in early trade. Macro economic data in the US appeared to vindicate fears that the economy may have entered a recession. Industrial output for September fell 2.8%, the worst drop in 34 years, as credit crunch, aircraft strike, in addition to hurricanes, weakened manufacturing.
    At the global level, central banks and governments continued to pour billions of dollars into money markets and troubled financial institutions, but the crisis in credit markets appeared nowhere close to resolution. If anything, every successive rescue plan seems to further underscore the severity of the situation, rather than assuage investors.
    South Korea was the centre of action on Thursday, with its currency and benchmark stock index shedding 10% each on a Standard & Poor's warning that the country's banks may struggle to refinance their debt. The focus shifted to Europe later in the day, with UBS becoming the latest high-profile bank to avail of a government hand out. The Swiss government injected a $59.2-billion lifeline into the high street bank, while it nudged another prominent bank, Credit Suisse, to raise funds from strategic investors right away. On the positive side, Credit Suisse Group was able to raise 10 billion francs from investors including Qatar and Tel Avivbased Koor Industries.
    In UK, the Bank of England announced a discount facility window effective from October 20, enabling banks to swap collateral, including illiquid corporate securities for UK government bonds. The central bank also offered to slash the penalty rate for institutions seeking overnight funds and ease disclosure rules to provide anonymity for the banks seeking such help.
    The European Central Bank pledged as much as € 5 billion ($6.75 billion) to the Hungarian central bank to help local credit markets become functional, and avert a further devaluation of the country's assets.
    Meanwhile, old wounds of the subprime loan fiasco reopened as Citigroup and Merrill Lynch reported consecutive losses for the fourth and fifth quarters respectively after heavy writedowns. Citigroup, the second-biggest US bank by assets, wrote down around $13.2 billion worth of loan losses and securities, while the corresponding figure for Merrill — which is being taken over by Bank of America — was $9.5 billion.