The Hindu Business Line : Sensex sheds 404 points; goes below 13,000

The markets tumbled again on Tuesday, with the BSE Sensex falling by 3.02 per cent or 404.01 points to 12,995.02, marking its first drop below 13,000 since November 8.

The Sensex has dropped almost 1,000 points or 7 per cent over three consecutive trading days.In the last two trading sessions, the market capitalisation has been eroded by Rs 2,56,132 crore.

Disappointing industrial growth in October at 6.2 per cent, the lowest for the year, added to the misery of the markets, which are in the correction mode. Stocks traded negative across the market breadth.

Negative buzz

Lack of margin funding and wind down of short positions in the futures markets also aided the fall. The impact of the RBI's hike in cash reserve ratio (CRR) continued to provide the negative buzz, said dealers. Markets are also nervy over the US Fed meet.

The BSE-30 Sensex lost 597.78 points intra-day ending below the 13,000 mark at 12,995.02, down 404.41 points or 3.02 per cent. The Nifty closed down 3.44 per cent at 3,716.90.

"The open interest positions have been reduced. Investors are looking at clearing their positions before markets crash any further. The turnover in the futures market has been highest since April 27, 2006 at Rs 45,365 crore," said Mr Shailesh Shah, broker, Rapid Capital Services.

Volumes were high on BSE. The total turnover on BSE stood at R 4,930.56 crore.

"There were margin calls. Investors had to liquidate their positions to obligate the margin funding across sectors," said Mr Vijay Kedia, Managing Director, Kedia Securities.

"Market meltdown is due to absence of a margin finance system. Only a handful of traders are doing proprietary funding and they square off like as if there is no tomorrow," said Mr S.P. Jain, Chairman and Managing Director, Networth Stock Broking Ltd.

All sectoral indices marked negative returns. Banking stocks continued to slide on the CRR announcement. BSE Bankex index lost 3.23 per cent at 6,531.95 points. BSE PSU index was the biggest loser at 5,711.80 points, down 4.39 per cent.

Losers beat gainers on a 5:1 ratio. Stocks of 2,160 companies declined while stocks of 424 companies gained.

`Over heated'

All the Sensex stocks ended in the red for the second consecutive day. The biggest losers included Grasim Industries, down 7.33 per cent at Rs 2,506.30, followed by ACC Ltd, down 6.16 per cent at Rs 972.35 and Reliance Communications Ltd, down 6.11 per cent at Rs 403.45.

FIIs are generally known to book profits in December. However, as per provisional figures on the NSE, they were net buyers for Rs 258.82 crore on Tuesday. They were net buyers on Monday also. "Stocks are still expensive at these levels. However, the fundamentals of companies globally have not changed. The CRR hike was an excuse to book profits at these levels," said Mr Andrew Holland, Head of Strategic Risk Group, DSP Merrill Lynch.

"Markets were over heated and the correction was overdue for a long time as they had gained 5,000 points on the trot. The CRR hike was the trigger and markets are due for a 20-25 per cent correction. Markets should bottom out once that happens," said Mr Rajen Shah, Chief Investment Officer, Angel Broking.

Positive triggers

Mutual funds have been net sellers for December at Rs 309.61 crore. "Hike in CRR and the probable outflow of Rs 25,000-odd crore by way of advance tax have sucked out liquidity from the markets. We are expecting positive triggers post the December 15, when corporate advance tax figures would be released. This would provide better revenue visibility via-a-vis corporates,'' said Mr Ajay Bagga, CEO, Lotus India Mutual Fund.

While there has been some redemption, mutual funds have not cashed out in the market slump. "There is some churn happening in fund allocations as 14 new funds have entered capital markets though," said Mr Bagga.

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