The Hindu Business Line : Sub-prime spectre shaves 642 points off shaky Sensex

Collateral damage
Major Asian markets slid by 4.5-6.5 per cent.
3 stocks hit upper circuit for every stock that touched lower circuit
‘Extreme short-term trend for markets is bearish’

Our Bureaus

Mumbai/Chennai, Aug 16 Equities, bonds and currency markets fell sharply on Thursday as turmoil in the global financial markets continue to spread fear among investors.

The benchmark BSE Sensex tanked by 642 points; the rupee lost 60 paise against the US dollar and bond prices retreated by about 45 paise.

Unconfirmed reports that two other American mortgage lenders have been affected by the sub-prime crisis haunted bourses worldwide for the third consecutive day.

“The US sub-prime issue is looming large in investors’ minds; lower housing stat data in the US and bankruptcy filing of the largest mortgage company were enough for the Asian markets to open weak and slide into the red,” said Mr Amitabh Chakraborty, President (Equity), Religare.

“If Dow Jones continues to fall further, Indian stock markets will face pressure from margin calls and unwinding of positions,” said Mr Arpit Agrawal, Head (Research), Arihant Capital Markets.

The Sensex closed at 14,358.21 on Thursday. Major Asian markets slid by 4.5-6.5 per cent.

Investors ignored a statement by Standard and Poor’s that problems with sub-prime mortgage in the US will not result in a crisis.

“The volatility index is at an all-time high at over 30 per cent, yen/dollar is showing all-time high-strength at 113 yen to the dollar, the emerging market bond spread over US treasury has expanded to 226 bps against the normal 140-150 bps, indicating risk aversion of emerging asset class and unwinding of yen carry trade,” said Mr Chakraborty.

Despite the sharp fall, circuit filter data presented a rosy picture, signalling that the fall was not as widespread as feared.

Three stocks hit the upper circuit for every stock that touched the lower circuit on the BSE.

According to BSE data, 315 stocks, predominantly from B2-group (160), hit the upper ceiling against 123 stocks in the lower circuit.

Retail investors were net buyers to the tune of Rs 537 crore while domestic institutions were net buyers to the tune of Rs 1,398.9 crore.

FIIs were net sellers to the tune of Rs 3,108.45 crore, as per provisional figures on the NSE.

A major sell-off was seen in Sensex and Nifty companies as FIIs hold huge positions in these companies.

Mr Gurudatta Dhanokar, Derivatives Strategist, Almondz Global Securities, said: “The technical signals indicate that the extreme short-term trend for markets is bearish.”