Market melts on global cues, monetary policy fears

Uncertainty, on both global and domestic fronts, pulled the equity market down for the sixth consecutive trading day on Wednesday. The 30-stock Sensex lost 490 points, falling 2.92 per cent to close at 16,289. It has fallen by 1,423 points over the last six days. The broader Nifty fell 3.09 per cent to 4,853. The NSE notched up a record F&O turnover of Rs 1.58 lakh crore.

The problem started last week, with the US President, Mr Barack Obama, placing trading and investment curbs on US banks, said Mr Deven R. Choksey, Managing Director, KR Choksey Shares and Securities: "As a result the banks, which now have to downsize their lending portfolios, want hedge funds to return their money. Hedge funds are, in turn, unwinding in the overseas markets."

This withdrawal is reflecting in the Indian market, where FIIs have sold equities worth more than a net Rs 7,100 crore over the last six trading sessions. On Wednesday, they were net sellers for Rs 2,212 crore. Global markets were in the red too. The Dow was down on Tuesday and, on Wednesday, the Hang Seng slid 0.38 per cent, the Nikkei 0.71 per cent, and the FTSE 1.16 per cent, while the CAC fell 1.4 per cent at India closing time.

POLICY UNCERTAINTY

Mixed corporate results added to the sentiment. Another reason for the market fall could be uncertainty about the extent of (expected) reversal of the accommodative monetary policy on Friday, said Mr G. Chokkalingam, Director and Head of Equity Research at Barclays Wealth.

He added that as the market had gained 80 per cent over the last 13 months, several largecap scrips had reached their fair valuations, triggering profit- booking.

Mr Choksey said that investors must not panic because the market can bottom out anytime: "Expect insurance companies to go bargain hunting during this fall."

Retail investors are already doing the same, showing up as net buyers on the BSE the past ten days. Mr Jason D'Souza, a regular investor, said he had been buying regularly the last six days. "On Monday and Wednesday I bought Punj Lloyd, JK Tyres and a few small-cap stocks. Tomorrow, too, at opening I will be buying."

Net retail purchases on the BSE amounted to Rs 214.5 crore on Wednesday. Domestic institutions were net buyers for Rs 1,475 crore on Wednesday and for Rs. 4,743 crore over the last six days. "It should also be kept in mind that it was the domestic institutions that invested in 2008, when the FIIs were taking out the money," said Mr Chokkalingam.

On the BSE, 88 per cent (or 2,581) of all the listed scrips declined, and only 338 scrips advanced. All the sectoral indices ended the day in the red, with realty, metal and auto bearing the brunt.