The Hindu Business Line : Stocks nosedive on US inflation concerns, weak Asian trend

Mumbai, Dec 17 Benchmark indices at the country’s two premier exchanges took a tumble on Monday following heavy selling pressure from both domestic and overseas investors.

Concerns that US authorities might hike interest rates in the wake of worries over inflation surfacing in the economy triggered nervous sentiment across markets world wide.

The BSE-benchmark Sensex tumbled almost 770 points, a fall of 3.84 per cent, to close at 19261.35. The broader S&P CNX Nifty fell by 4.48 per cent, its highest single day fall ever.

At the BSE, the overall market breadth was negative with 1473 stocks declining to 934 stocks advancing.

“Asian markets were weak and there was heavy selling by FIIs, including those linked to P-Notes since morning. The afternoon session saw selling from the ‘operators’ (investors who build positions ahead of institutional interest in specific stocks) counters also”, said Mr Jignesh Desai, Head of Institutional Sales, SBICAP.

Hang Seng was down by 3.51 per cent, Nasdaq by 1.23 per cent, Nikkei 225 by 1.71 per cent.

Mr Vishwas Agarwal, an independent analyst, felt that a correction was bound to happen and the FII selling in the morning acted as the initial trigger. The December F&O settlement was strong and there did not seem any weakness in the markets and there was continuous buying position in the markets of late, he added.

“Also with the holiday season in the US, there is a lot of redemption pressure on FIIs as investors abroad want to spend in this season, so this was an additional trigger” Mr Agarwal also said.

FII were net sellers today to the tune of Rs 2151.21 crore, whereas domestic funds were net buyers to the tune of Rs 226.86 crore.

All sectoral indices ended in the red today with BSE-Metal registering the highest fall of 7.28 per cent, BSE-Realty by 5.65 per cent, BSE-PSU by 5.63 per cent and BSE-Oil&Gas fell by 5.13 per cent, BSE-Power fell by 4.80 per cent, and BSE-CG was down by 3.69 per cent.

“The sectors which had done very well in the rally earlier have been beaten the most”, said Ms Anita Gandhi, Head-Institutional Business, Arihant Capital Markets Ltd.

Some market participants believe that the guidelines issued by RBI on credit tightening have also added to nervousness in the market.

“The clarification by RBI that banks cannot give guarantees to stock exchanges on behalf of FIIs, seems to have been taken by the market negatively and there was selling across all counters, as investors unloaded their outstanding exposures”, said a dealer from Emkay Institutional dealing desk.

The Reserve Bank on December 14, 2007 had tightened the credit facility for Mutual funds and asked banks not to guarantee payments to stock exchanges on behalf of FIIs and in addition had stated that funds provided by banks to the equity-oriented MFs would be factored into individual banks’ capital market exposure limit.

Rupee falls

The rupee also fell in tandem with the fall in stock markets by 20 paise on Monday.Detailed report on Page 6