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Indian Stock Markets Continue Nosedive

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Praveen Gurwani
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Thumbs down Indian Stock Markets Continue Nosedive - December 14th, 2006

Indian Stock Markets Continue Nosedive

Sensex, India's benchmark stock index, which brushed past the 14,000 mark only a week ago, closed below 13,000 on Tuesday, with a massive drop of more than 1,000 points amid a tightening of monetary policy and an industrial slowdown.

At the close of trading, the 30-share Bombay Stock Exchange's Sensex was down 404.41 points at 12,995.02, after reaching the day's low of 12,801.65 points, while the 50-share Nifty was down 132.60 points at 3,716.90.

BSE index fell 3.0 percent on Tuesday, extending a 2.9 per cent fall on Monday.

In the process, the Sensex has shed 977 points, or 7 per cent, in just three trading sessions.

One of the reasons, which made foreign institutional investors offload their holdings, seems to be a fall in India's industrial production, say experts, which has fallen short of market expectations.

The country's industrial output growth, according to government estimates, trickled to 6.2 per cent in October, the lowest this fiscal year, on account of a slowdown in manufacturing production.

Another contributing factor, say stock analysts, is that government may not divest its stake in any of the profitable public sector units in the near future, which weighed in significantly and triggered a sell-off in stocks.

The biggest fall in stock value, which wiped of 17.2 per cent from the Sensex, was recorded in May 2004 when the then-ruling Indian party was toppled and the present governing alliance formed the next government.

The ongoing bear run started Monday after the decision of India's central bank, The Reserve Bank of India, to increase the Cash Reserve Ratio (CRR) by 50 basis points. This triggered massive selling, especially of banking stocks.

The bank initiated this increase in a bid to cool down the economy by tightening liquidity and get a better grip on rising inflation which has risen to 5.3 per cent, as compared to 4.4 per cent corresponding to the same time previous year.

Earlier, reacting to falling share prices, India's finance minister P Chidambaram had said Monday that there "was no cause for worry.

"I don't see the correction lasting beyond a couple of days. The market is still flush funds," said Devesh Kumar, head equities, ICICI, reported the Economic Times.

Traditionally, December has been a month when markets end on a positive note. Historical data shows that Sensex has ended in the negative territory, in December, only five times in the previous 27 years.
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