The Hindu Business Line : BNP trouble hurts stocks; Sensex drops 442 intra-day

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BNP trouble hurts stocks; Sensex drops 442 intra-day

Sub-prime shadow: On a day of high volatility, early gains wiped out

Our Bureau

Mumbai, Aug. 9

News that the French banking group BNP Paribas has been hit by the US subprime mortgage crisis triggered panic selling in the equity markets on Thursday, wiping out early gains.

BNP Paribas Investment Partners, a unit of French bank BNP Paribas, suspended withdrawals from three of its mutual funds due to “complete evaporation of liquidity”.

The Bombay Stock Exchange benchmark index opened strongly with a 234-point gain but fell sharply after European markets opened weak with BNP Paribas and a German bank, Commerzbank, seeing a sharp fall in their share prices after BNP’s announcement.

Gains wiped out

The 30-share index witnessed high volatility as all the early gains were wiped out, the Sensex dropping 442.25 points from the day’s high of 15,542.40. It ended the day at 15,100.15, down 207.83 points or 1.36 per cent, from the previous day’s close.

“Issues are being raised again about whether the subprime problems would infect the world economy,” said Ms Shahina Mukadam, Head of Research, IDBI Capital Markets Service Ltd.

“Yesterday, markets rose on reports from the US about how the crisis would only affect the US market. We’re going to have to live with this volatility. Overnight, there may be more reassurances from the US and international markets would react accordingly,” she added.

The markets faced a lot of panic selling as Asian markets, led by Hong Kong, also turned weak.

‘Sending shivers’

BNP Paribas’ move follows a similar decision last Friday by a German mutual fund company, Union Investment, which froze one of its funds that has exposure to the US subprime market.

“The BNP Paribas announcement sent shivers to the entire world market. Also, our market has risen over 600 points in the last two-three days, so there was bound to be a correction. Investors started booking their profits and there was an unwinding of positions by traders,” said Mr Vijay Kedia, MD, Kedia Securities.

Of the 30 Sensex companies, 23 declined and seven advanced. The overall market breadth was also negative with 1,012 stocks advancing and 1,611 declining.

All indices ended in the red with consumer durables leading the pack, closing down 2.47 per cent at 4,093.62. Bankex dipped 1.25 per cent to 7,975.48.

The trading volume was very high with Rs 5,495.26 crore changing hands.

Gainers & losers

The broader based National Stock Exchange index, S&P CNX Nifty fell 1.32 per cent to 4403.20.

Hindalco Industries was the top loser on the bourses, falling 3.61 per cent and 3.50 per cent on the BSE and NSE, respectively.

State Bank of India was the second largest loser, falling 3.30 per cent on the BSE and NSE.

Top gainers on the Sensex were Dr Reddy’s Laboratories Ltd, up 1.23 per cent at Rs 638 and BHEL, which gained 1.21 per cent at Rs 1,733.05.

Market men expect the volatility to continue in the next few trading sessions.

“The global market pressure is leading to this kind of volatility and it is bound to continue for some time. The correction is on and though the fundamentals of the market in the country remain strong, global markets are bound to affect them,” said Mr A. Balasubramanian, Chief Investment Officer, Birla Sunlife AMC Ltd.

“Markets are going to continue to remain very volatile. However, I don’t expect to see much of a downslide. I think 15,000 will be the bottom level, as there is still a huge interest in Indian markets,” said Mr Kedia.

Geojit shares decline

BNP Paribas holds a stake of over 27 per cent (as at June 2007) in Geojit Financial Services Ltd.

The share price of Geojit lost Rs. 1.70 or 3.92 per cent, on the bourses on Thursday, to close at Rs. 41.7.

The French banking group acquired its stake in Geojit early this year.

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