Sensex joins Asian crash, slides 413 in yo-yo trade

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MUMBAI: The concerns over rising interest rates in the US and elsewhere that had been gaining momentum over the past few weeks picked up speed on Tuesday, leading to a steep crash in key Asian markets.

The sensex lost 4.3%.The bearish sentiment in India was reflected by reports of major brokers offloading large positions.

Market circles were agog with news that two Mumbai-based operators and a large broker operating from Kolkata had sold large positions in the cash market, sending the 30-share index below the 9000 level for the first time since November ’05.

The fall was further compounded by unconfirmed talks that a large Mumbai-based bullion house had also sold heavily in the stock market and incurred huge losses. The sensex fell 413 points, or 4.3%, to end at 9062.65 points on a day marked by extreme volatility. The National Stock Exchange’s Nifty was down 4% at 2663.30 points. The sensex has lost 3609 points since May 10, wiping out a big chunk of the gains it had notched up this year.

High net worth individuals unwound large positions, while fears of a margin default prevented brokers from accepting any buy orders. The mood was nervous and hesitant, amidst global chaos and uncertainty. At Tuesday’s closing prices, the discount of the local shares to the ADRs was between 10% and 15%.

International reports suggest that almost $1.85 trillion worth of investor wealth has already been eroded since the beginning of June on concerns of a US rate hike and high inflation.

On Tuesday, investors scurried to recoup losses after news that a US Federal Reserve official had strongly hinted at an imminent rate hike by saying that inflation in the US was a cause for worry. Investors fear that a rise in US interest rates could force funds to shift their money from equities to safer alternatives such as bonds.

But leading market participants and corporates sought to downplay the fall. “It isn’t anything that I would be duly worried about,� said Pankaj Razdan, MD of Prudential ICICI, one of India’s largest mutual funds. “There have been global concerns of US and Japanese interest rates and some worries about redemptions by local funds in India. Once there is clarity on the rate hikes, the market will stabilise,� he added.

The Bank of Japan, like the US Federal Reserve, is expected to increase interest rates soon, fuelling speculation that Japanese funds could pull out of most emerging markets, including India. While the US Federal Reserve is scheduled to meet on June 28 and 29 to decide on the rate hike, it is yet unclear when the Japanese central bank would meet.

According to Shankar Sharma of First Global, “Tuesday’s fall is the market’s way of telling investors to be more cautious. The US interest rate concerns, oil price fears and inflation worries are all, in my opinion, non-issues. They were there before and I don’t think that they are the main reasons for the fall in the market.�

“Nothing has altered fundamentally. Although valuations had gotten out hand, people had forgotten that there is also the risk factor in the stock markets,� he added. If the US’ Federal Reserve raises interest rates on June 28, it will be the 17th time that the world’s largest economy would have increased its rates.

According to provisional figures released by the BSE, FIIs sold Rs 171 crore worth of Indian securities on Tuesday, a marked contrast to Monday, when they bought Rs 97.9 crore worth of shares. Market regulator Sebi releases FII figures with a day’s lag.

Corporates also did not show undue concern. According to Wipro Technologies vice-president KR Lakshminarayan, “The fall would likely lead to value picking by fundamental players. It’s a correction which was expected.�

Tuesday saw all-round falls globally. While Nasdaq had fallen to a seven-month low, Japan’s Nikkei was down 4.1%, the steepest fall since September ’01, when terrorists attacked the World Trade Center in the US. Also, Hong Kong’s Hang Seng fell 2.4%, while the bearish trends led to a 2.9% fall in Korea’s Kospi index, a fall of 1.9% in Singapore’s Straits Times and an erosion in Indonesia’s Jakarta Composite index by 2.8%. Even the Morgan Stanley Capital International’s Asia-Pacific Index fell 3.5%.

The situation of low volumes continued on Tuesday with losers outpacing gainers in a ratio of 7.6:1. Of the 2,400 stocks traded on the BSE, 2,083 stocks fell, 271 stocks advanced and 46 stocks remained unchanged.

Most sectoral indices were down, with the BSE capital goods index plunging by 6.6% and the BSE metal index by 6.45%. The BSE auto index shed 6.2% and the BSE FMCG index, 4.7%.