The Hindu Business Line : Sensex down 770; dollar dive against yen impacts markets

News of unfavourable global currency movements and weak January data on domestic industrial output sent the Sensex plunging 770 points, to its lowest level so far this year, to close at 15357.35. This was also its six-month low.

“The sentiment being very weak, the appetite for bad news is very poor. In this scenario any negative news is a trigger”, said Mr Sanjay Sinha, Head-Equity, SBI Mutual Fund.

Foreign institutional investors were net sellers for Rs 108.5 crore, while domestic institutions were net buyers for only Rs 56.44 crore, according to the data on the National Stock Exchange.

There was a marked lack of domestic buying support, with both mutual funds and insurance companies not participating in any substantial way, said marketmen.

“Selling came from the institutional side, and there was a bit of short covering as people expect the markets to still go down,” said Mr Ashutosh Bhavsar, Head of Research, LKP Securities.

Yen effect

Internationally, the dollar fell against the yen to a 12-year low. This, according to marketmen, had a negative impact on markets across the world.

(American institutional investors have been borrowing in the Japanese currency to invest in emerging markets including India; with the yen rising, borrowers would now have to offer more dollars to repay Yen loans. This would mean that institutional investors may have to liquidate their positions in emerging markets to close out their yen loans).

“It was basically the currency movements which impacted the markets today,” said Head of Research at a Mumbai-based broking firm.

Slowdown signals

The Index of Industrial Production (IIP) data and the sharp decline in the capital goods sector growth, were also seen as indicating a slowdown in the economy and signalling poor fourth quarter results from Indian companies.

The question on everybody’s lips is how long will the market continue to tank? Retail investors are too afraid to buy, and very unwilling to sell at a loss, said the head of a broking firm. “There is little confidence in this market,” said Mr Vishwas Agarwal, an independent research analyst.

“Frankly speaking nobody will really be able to justify at what level or time the markets will settle, it’s only probabilities which we can draw,” said a broker with a Mumbai-based broking firm.

Market breadth negative

The market breadth was negative with 2,332 stocks declining and only 345 stocks advancing. Amongst the sectoral indices, BSE-Realty index was the worst hit. It fell a heavy 11.59 per cent.

BSE-Consumer Durables fell 7.83 per cent, BSE-Metal dropped 8.38 per cent and BSE-Power 6.28 per cent. BSE-Capital Goods 5.62 per cent, BSE-Bankex 5.59 per cent and BSE-IT was down 4.62 per cent.

The biggest losers included most of the Sensex stocks. DLF declined 14.87 per cent, Reliance Energy 9.87 per cent, Hindalco 9.44 per cent, Tata Steel 9.04 per cent, Reliance Comm (7.07 per cent), BHEL (6.63 per cent) and Wipro 6.37 per cent.

Bank stocks which fell substantially included ICICI Bank, which declined by 4.77 per cent, SBI 6.21 per cent and HDFC 5.24 per cent.

Carlyle defaults

The markets will have more bitter news to digest on Friday. Late reports on Thursday said investment fund Carlyle Capital Corporation had defaulted on debt of nearly $17 billion.