Re: Indian Markets dive over 4.5% in intra-day trade.
Quake at Nasdaq, tsunami hits Dalal Street
http://economictimes.***************/articleshow/981898.cms
Quote:
Spillsville on the Sensex: First, it seethed. Then it simmered, and in one swift splash, boiled over.
Some say they saw it coming, and took them back to Black Monday eight months ago. On Wednesday, the sensex took a 317-point dive on some tough talking by the US Fed, an already burgeoning outstanding position, a crash in metal prices, and the seemingly phoenix-like rise of the dollar.
These circumstances spooked both foreign and local investors. Too add to this, a minor earthquake on Nasdaq made the BSE quiver, shedding over Rs 68,000 crore of shareholder wealth in a single day.
“Valuations had run up. The market seemed ripe for correction. The Fed’s position and the strength of the dollar only gave it the necessary push,” said the CEO of a large domestic mutual fund.
The sensex fell 317 points to an intra-day low of 6334.74, before recovering to close 192.17 points or 2.89% down at 6458. This is the biggest single intra-day fall since May 17 last year, when it tumbled 842 points or 17% on anxiety over the change in regime at the Centre.
Wednesday’s fall is also the seventh largest since ‘01 and 28th largest in the history of the index. Street-savvy readers of ET should know that the over-heated market was about to wind down its positions. On the first trading day of the new year, January 3, ET had predicted volatile days, warning investors of the dangers that lay ahead.
The broad-based Nifty fell 113 points to the day’s low of 1990 before recovering to 2032, down 3.4%. The index had been slipping steadily throughout the day, but plunged below 2000 after 2 pm, before recovering slightly.
LIC, the biggest Indian institutional investor, said it might use the opportunity to buy. “We will look for opportunities to buy,” said LIC chairman RN Bharadwaj.
Market sources said the partial recovery towards the closing was on the back of LIC and UTI purchases.
Two days ago, the sensex had welcomed ‘05 with a 76-point salute that suggested that the momentum generated in ‘04 would continue.
The index had risen 52.7% from its 52-week low of 4227 on May 17 to end ‘04 on a high note, spurred largely by generous foreign fund inflows.
That euphoria, however, has proved to be short-lived.
A hawkish signal from the US Federal Reserve, which released minutes of its December meeting on Tuesday, suggested that it may move soon to hike US interest rates.
The Fed said that the target rate is less than that needed to slow inflation after five increases last year. The stance is seen in many circles as a prelude to further increases in US rates, currently at 2.25%, especially as it comes on the back of optimistic news about the American economy.
The dollar jumped immediately on the news, rising to its highest in three weeks versus the euro in early New York trade on Wednesday. The greenback is rising for the fourth straight day against the euro after falling 7.1% versus the currency in ‘04.
In the domestic currency markets, the dollar climbed 20 paise as investors bet that dollar assets would be attractive in a rising interest rate scenario.
This is crucial as a good amount of FII interest in Indian stocks in ‘04 was generated by the appreciation of the rupee versus the greenback. That made domestic assets more attractive.
But with signs pointing to an increased interest in the dollar, investors, especially FIIs, may prefer greenback-denominated assets, analysts said.
This was evident from the behaviour of other Asian markets as well.
Hong Kong’s Hang Seng fell 2%, while the Taiwan stock index slipped 1.2% as hedge funds offloaded stocks in a hurry.
Hedge funds and other FIIs are also believed to have led selling in India. Estimates range from Rs 100 to Rs 300 crore of stocks sold. Buying by LIC and UTI sparked a late afternoon recovery though analysts advised caution.
“Short term investors need to be careful. The next few months are likely to be volatile,” said a senior industry official.
Metal, banking and technology stocks were the biggest losers. Prices of copper, aluminium and zinc tumbled on the London Metal Exchange, affecting prices of metal companies in the domestic market.
Shares of Nalco, Asia’s biggest alumina maker, tumbled 10.62%. Hindalco, the country’s largest aluminium firm saw its shares slip 5.15%. The BSE Metals Index crashed 308 points or 4.9% as hedge funds offloaded from the LME.
Banking was also hit hard. It lost about Rs 8,005 crore in market capitalisation, followed by IT, which lost Rs 6,764 crore. The market capitalisation of the Bombay Stock Exchange fell by Rs 68,196 crore, while that of the NSE fell by Rs 56,103 crore.
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5th January 2005, 07:16 PM
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