Sensex plunges 387 points in global sell-off; IT stocks slump

Mangalore Today News Network

Mumbai, Aug 5 , 2011 : Indian markets joined a global sell-off triggered by fears of a double dip recession in the US. The benchmark indices fell over 2 per cent but managed to close well above the intra-day lows, indicating the return of some strength after a panic sell-off.

The markets pulled back substantially from the day’s low, with the Sensex re-gaining over 300 points to claw back above 17,000 levels. The BSE benchmark closed 387 points lower at 17,305 and the Nifty declined 120 points to close above the 5,200 levels.

 

 

Earlier, the Sensex hit a 52-week low, falling to an intra-day low of 16,990. The Nifty was down to 5,116, breaking the previous 52-week low of 5,177. The market volatility hit a five month high as the India VIX index jumped 23 per cent. The average turnover was at a record high. The selling pressure was so intense that only 65 of the 500 stocks on the BSE 500 index managed to advance. That translated into an advance decline ratio of 13 per cent.

On the Sensex, 27 of the 30 stocks closed lower. ONGC rose 1 per cent, Hindalco and Cipla also managed to gain. The declined were led by Reliance Infra that plunged 7.5 per cent. Another Anil Ambani Group Company, Reliance Communications, fell over 7 per cent.

The recovery (from the day’s low) came as the economic affairs secretary stepped in to say that India’s fundamentals were strong and there was no need to panic. R Gopalan said the markets are likely to settle by Monday or Tuesday. "Once markets are able to overcome the panic reaction, I am sure the investors will find merit in investing in our markets," Mr Gopalan said. Finance Minister Pranab Mukherjee said external factors were responsible for the market crash.

The sell-off was triggered because of fears of another recession in the US, where a spate of weak economic reports led to a crash on the Wall Street overnight. The Dow tanked 512.76 points, or 4.3 per cent to 11,383, in its steepest point decline in two and a half years. The Dow is now in the negative territory for the year.

Most analysts were taken by surprise at the magnitude of losses. Shardul Kulkarni of Angel Broking said the fall was not entirely expected though the pace of fall is surprising. "It is too early and too dangerous to go long on the markets," Mr Kulkarni said.

IT stocks were the worse hit. IT major Infosys was down nearly over 4 per cent to hit a yearly low.

Some other stocks to hit 52-week lows were Reliance, Infosys, PSU major Bharat Heavy Electricals (BHEL), Jindal Steel (JSPL), Vedanta Group Company Sterlite and Sesa Goa, government owned Steel major SAIL, Aditya Birla Group’s Hindalco, Sajjan Jindal’s JSW Steel, JP Associates, GMR Infra, Crompton, Unitech and Bharat Forge.

Sandeep Bhardwaj of Tower Capital said, "It is just the beginning and wild moves are expected." Ultimately the western economies are realising that printing more money is not going to help... economies need to shrink before they grow, Mr Bhardwaj said. "Investors should put their money in fixed deposits to get 10-11 per cent interest", Mr Bhardwaj said. Pharma and Telecom is the place to be if one has to stay invested in stocks, he added.

Domestic analysts have been worried about the effects of rising interest rates and see the US slowdown as an opportunity for the RBI to hit the pause button. Parul Saini, Executive Director at RBS Asia Securities said, "Given what is happening in the US and Europe and given what is happening to the commodity prices. I do think that this could lead to the RBI potentially pausing in September if commodities continue to come off and crude oil and crude oil prices continue to come off."

Jim Rogers, CEO of Rogers Holdings said, "This is not a one day thing... this has been building for a while... people have been worried about markets... commodity markets have been doing better but at the moment everything is going down because everybody is afraid of everything."

But Mr Rogers said there was worse in store. "But certainly in the next year or two, we are going to witness terrible sell-off because the world is in terrible trouble... America has quadrupled its debts in the last 3 years overall situation has gotten worse not better," he said.

Speaking to NDTV, Mark Mobius, Executive Chairman of Templeton Asset Management’s (EM), said, "The main thing is the uncertain results in everybody withdrawing to what they concern as safe haven... in this case its more panic because the US treasury is no more considered safe."

However, Mr Mobius said, “We feel it is very important to be in equities... in times like this we have everyone selling everything to get into some kind of cash and you have situations where people even start to hoard essentials... This kind of a turmoil situation... presents some kind of opportunities if some of these stocks go down to low and attractive levels."

Manufacturing activity in the US has been at a standstill, services that account for 90 percent of the American work force, is growing at the slowest rate in a year and a half. Consumer spending declined in June for the first time in almost two years. To top it up, the GDP is growing at the slowest pace since the end of the Great Recession. The unemployment rate continues to be at a high 9.2 per cent. In an indication of worsening US economy, some banks are planning to charge investors for their savings account.

European economies continue to reel under the debt crisis, with more countries joining Greece and Ireland. Italy and Spain might need help from the European Union.

The Asian markets plunged today, the Hang Sang falling over 4 per cent and Japan’s Nikkei closing 3.72 per cent lower. European indices also witnessed panic selling with Britain’s FTSE falling nearly 2.5 per cent in early trade.

Global economists are also not in favour of another quantitative easing by the US to kickstart its economy. Andrew Holland, CEO - Equities of Ambit Capital said, "I do not think the markets want a QE3, they can see the damage that is being caused by just throwing money after the problem. It is more constructive if the jobs grow. This would be great news for the US market and obviously keep the commodity prices down."

 

Courtesy : NDTV