SENSEX DOWN 432 PTS: FOREIGN FUNDS GETTING SKITTISH

FIIs desert Street on IIP nos, global scare

Offload Shares Worth 782.27 Crore,Highest Since May 25 Equities across the world tumble while commodities & precious metals lose steam as fears of a fresh credit crisis loom large

Our Bureau MUMBAI

    INDIAN shares fell the most in five months on the biggest selloff by overseas investors since May 25, as slowing industrial output and global turbulence forced some to lock up profits.
    Equities across the world tumbled, with China's benchmark indices crashing more than 5% on fears that it may raise interest rates to contain a 25-month-high inflation. Commodities and precious metals also lost steam as a fresh credit crisis looms, with Ireland possibly heading the Iceland way in repaying sovereign debt.
    "Markets have been looking for an excuse to correct for a while now," said Bharat Iyer, executive director and head-India research at JPMorgan. "With the primary market opening up, choppy economic data points... and whatever data is coming out of the G20 summit... has served as an excuse to shed some froth."
    The 30-share Sensex declined 432.20 points, or 2.10%, to 20,156.89 with three stocks falling for every one rising. The broader S&P CNX Nifty fell 122.60 points, or 1.98%, to 6,071.65. Foreign funds sold Indian shares worth 782.27 crore on Friday, according to provisional BSE data. This is the highest since May 25 when they sold 1,200 crore. The Shanghai Composite Index crashed 5.2% in China and the MSCI Emerging Markets Index fell 1.5%.
    Both the domestic indices have risen about 15% since January, boosted by record foreign fund flows of 1.2 lakh crore, or $27 billion.
    Investors are getting skittish due to a divergence of policy actions between the US and the rest, with the possibility of a currency war. While the Federal Reserve's $600-billion quantitative easing, or printing of more money to revive the economy, has raised hopes of more money flooding the emerging markets, including India, it could lead to controls that could force the world economy into a slump again.
    "One cannot deny that market reaction to events like say China hiking interest rates or South Korea imposing capital controls has been slightly disproportionate. This would seem more on account of the
    sharp run-up," said Mr Iyer.
The slowing industrial output in India is also raising concerns that soaring inflation and lack of capacity addition could cripple the overall growth rate.
Industrial production growth slowed to a 16-month low of 4.4% in September compared with Bloomberg estimates of 6.4%. But some believe that it may be a temporary phenomenon.
`We would caution against interpreting the year-on-year August and September softness as a sign that demand is slowing," Goldman Sachs economist Tushar Poddar wrote in a note.
    Some of the international investors hurt by low returns in the West and growth uncertainty are favouring emerging markets such as Brazil and China. This could also help India attract more funds.
    The latest quarterly Bloomberg Global Poll of 1,030 investors, analysts and traders showed that they are seeing opportunity and taking on greater risks, looking more to emerging markets such as China, Brazil and India than developed countries.