Global meltdown fears pull sensex to 12-month low

Mumbai: A global contagion across stock markets, over renewed fears that the US economy could enter a fresh phase of recession, gave Dalal Street investors another Black Friday, with the sensex plummeting 387 points to close at 17,306, a 12-month low. 

    Panic-stricken investors sold stocks from across sectors, but real estate and automobile companies that usually find the going tough when interest rates in the economy are high, were hit the hardest. Selling by foreign funds, high inflation and rising interest rates combined to make a deadly cocktail, pulling the sensex down 700 points at one point—an almost 14-month low. 
PANIC ON D-STREET 05/11/2010 (Diwali): 21,00505/08/2011 (Friday): 17,306 
During this period: 

• It lost 3,699 points or 17.6% 

• Investors' wealth was eroded by 14 lakh crore 

• Net selling by FIIs in the stock market was 11,000cr compared to inflows of 65,000cr between Jan 1 and Nov 4 last year 

• Top sensex losers in the 9-mth period were Jaiprakash Associates, down 55% to 61, & Reliance Infra, down 50% at 524 

• On Friday, the top losers were Reliance Infra, down 7.4%, Reliance Comm, down 7.2%, and Sterlite, down 6.2%PLUNGING WOES 'Black Friday has hit investor confidence hard' 
Mumbai: Among the top scrips that were beaten down on Friday, index heavyweight Reliance Industries, which has been under substantial selling pressure since the beginning of 2011, plunged over 4% to Rs 779—nearly a twoand-half-year low—but finally settled at Rs 792, down 2.6% on the day. The day's sell-off left investors poorer by Rs 1.3 lakh crore with BSE's market capitalization now at Rs 63.6 lakh crore. 
    An overnight 513-point crash in the Dow Jones Index in the US—its worst sell-off in two years—led to all the Asian markets, from Japan to Hong Kong to China, starting Friday's trading deep in the red. Nervous investors in India too quickly pressed the sell button. However, buying of blue chip stocks at beatendown prices helped the index recover in the second half of the session. 
    In the US, although the government passed a new act that increased the amount of money the country could borrow (called debt ceiling), poor economic growth numbers have raised the prospects of another recession in the world's largest economy. As a result, there is panic among global investors who are rushing to get out of risky assets like stocks. On the domestic front, the high rate of inflation and high interest rates are making investors jittery. Besides, the fact that a number of foreign fund managers have turned sellers has also not helped matters. 
    "Pain on both sides, local and global, led to this panic selling," said Motilal Oswal, chairman of a broking house with the same name. "Other than global concerns, there is serious concern about the rising interest rates in India, more so after the unexpectedly high 50 basis points (100 bps=1%) hike in key policy rates by the RBI. Corporate margins are being impacted in a major way," he said. 
    Market participants also believe that Friday's panic selling, coming on the back of a recent weakness, has dented investor confidence in stocks in a major way. BSE data showed that the sensex this week has lost nearly 5% while it is down 7.7% over the last one month. "The market is in an oversold zone, but there are structural problems which will limit any northward movement (of the index) from here," said Vikas Khemani, president, Edelweiss Securities. 
    In Friday's session, BSE data showed that FIIs were major sellers, clocking a net outflow of nearly Rs 1,790 crore from the secondary market. Domestic funds, on the other hand, recorded a net inflow of about 1,370 crore. Of late, as uncertainty in the US has heightened, foreign fund managers have started taking money off the table, with the current month's tally, in just five sessions, pegged at over Rs 3,000 crore. "There are many FIIs waiting to enter India mainly because there are not many markets which can offer them good growth at reasonable valuations, but for that to happen, there has to be some positive changes either in the economy or on the policy front," Khemani, who heads the institutional business at Edelweiss, said. 
    So far this year, FIIs have taken out nearly Rs 8,100 crore from the secondary market. And market players believe unless they start buying in a big way, the Indian market is unlikely to rally. 
    On the sectoral front, stocks of companies from industries which are sensitive to a high interest rate, like real estate, financial services, automobile and capital goods, were at the receiving end.Of the 30 sensex stocks, 27 closed in the red, while three—ONGC, Hindalco and Cipla—ended in the black. In the broader market, laggards outnumbered winners by a margin of over 4:1 with 2,365 declines to 556 advances. 
    In the backdrop of the global selloff, the prices of crude oil also dropped, which could turn out to be a huge positive for India. "If crude prices fall that would lead to lower import bill for India, narrowing its trade deficit. This could also have a positive impact on the rate of inflation, which in turn could prompt RBI not to raise rates," said Nirmal Jain, chairman, India Infoline. "Along with this, if the monsoon is good, that could also help in reining in commodity prices, and lower inflationary pressure," Jain said.