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Markets turn weak as fear of war mounts

Our Bureau

MUMBAI, Dec. 26

AS tensions between India and Pakistan increased, the financial markets today turned jittery with the rupee tumbling by 14 paise to end weaker at 48.04/05 to the dollar and investors became cautious on the bourses.

Investors responded with restrained caution as stocks tumbled in the last half-hour on the extended trading time on both the leading bourses of the country. Investors across the spectrum seemed to be wary of the developments taking place and were relucta nt to take fresh positions.

Forex dealers said with cross-border tensions mounting over the past couple of days, importers were coming in to book their positions in anticipation of a war.

The various factors that contributed to the bearish sentiments included the cancellation of the Army Day Parade and the Government's intention to increase the buffer oil stocks in the country.

``These reports that came during the market hours, aggravated the already depressed sentiments,'' a dealer said. The 30-share benchmark sensitive index of the Bombay Stock Exchange (BSE), Sensex opened marginally lower at 3227.80 but fell in the last ha lf- hour to close at 3175.80, down by 57.11 points against the previous close. The S&P CNX Nifty closed at 1034.25, down by 14.25 points.

Information technology and refinery stocks were among the major ones to feel the heat of the border situation. Index heavyweight, Reliance Petroleum fell by 9.08 per cent to close at Rs 27.10 on fears of possible war. ``RPL refinery at Jamnagar is close to the Indo-Pak border and could be in the line of fire in the event of any escalation of tensions,'' a dealer said.

Apart from the frontline stocks, second-rung scrips also declined with investors winding up positions. The BSE IT index fell by 3.43 per cent, thus reflecting the cautious mood of investors in this sector.

Institutional activity was confined to domestic institutions specially UTI and insurance companies.

Stock prices are expected to remain depressed until some positive news comes, dealer said.

According to a foreign exchange dealer, ``There was substantial demand for greenbacks from importers today. This is not genuine corporate demand, although corporates too were in the market buying dollars.'' This spate of dollar buying is purely on the ba sis of apprehensions, he added.

Rupee hits low

After opening the day at 47.94/96, the currency started slipping almost instantly on the back of good dollar demand, touching an intra-day low of 48.07/08, before gaining marginally at closing, according to dealers.

Meanwhile, the forward premia tracked the tension on the spot and surged in the short and medium term. The one-month premia ended higher at 7.35 per cent (7.07 per cent). The premium for six months ended at 6.85 per cent (6.64 per cent) and the premium f or one year ended at 6.43 per cent (6.31 per cent).

Bond prices plunge

Propelled by the prevailing political uncertainties, bond prices fell by around 80 paise across maturities on the government securities market today.

Dealers said bond prices came down in a flash when the market commenced trading. Subsequently, these levels were sustained for the rest of the day. The 11.50 per cent 2011 got dealt at Rs 121.10 (Rs 122). The 11.03 per cent 2012 was traded up to Rs 118 ( Rs 119.20), the 9.85 per cent 2015 got dealt at Rs 110 (Rs 111.20).

Call rates ended higher at 7.5 per cent levels in the interbank market today. ``Call rates are under pressure because of constricted liquidity after the advanced tax outflows. People also want to cover their products on account of apprehensions over the war like situation,'' said a bond dealer with a private sector bank.

``The market will move each day now depending on the kind of statements that are issued by the Government. It will be an incident-prone market,'' he said.

In the one-day reverse repo under the LAF, the RBI received one bid for Rs 5 crore, which was not expected.