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The continuing financial crisis plaguing the global markets not unexpectedly left its deep scars on the domestic bourses as well on Monday. The Sensex shed some 724 points to close below the psychological 12000-level at 11,801 while the Nifty fell 5.66 per cent to close at 3,602.35.
Marketmen attributed this to panic selling in frontline stocks as well as in select mid-caps by FIIs and some high net worth individuals who had their positions highly leveraged.
The SEBI board lifted the October 2007 restrictions on issuance of participatory notes by foreign institutional investors with immediate effect; a move widely perceived to bring in more funds to lift the sagging capital markets. FIIs can issue P-Notes against securities, including derivatives, as underlying assets. The P-Note limit of 40 per cent of an FII's total assets under custody has also been done away with.
Monday's lifting of the P Notes restrictions however did not cut much ice with the markets. In fact, the P-Notes restrictions of October 2007 hardly deterred FIIs, who went on to invest in the Indian markets, which touched an all-time high in January 2008.
"FII inflows and outflows have been determined by their liquidity situation overseas more than anything else," said an official with a broking firm.
To ease the current cash crunch in the financial system, the Reserve Bank of India on Monday announced a half percentage point reduction in the cash reserve ratio (CRR) to 8.5 per cent from 9 per cent.
The CRR cut, which was to have come into effect from the fortnight beginning October 11, 2008, was further helped by another revision on Friday, with the whole thing expected to release a whopping Rs 60,000 crore into the system.
The Sensex on Tuesday opened with a gap of over 250 points and touched an intraday high of 12,181 points. However, the volatility in the market was so high that it led to a fall of over 600 points in mid-session, taking the Sensex to an intra-day low of 11, 501.
The Sensex closed at 11,695, 106.46 points down from its previous, while the Nifty closed nearly flat at 3606, up just 4 points.
The rupee fell, breaching the 48 mark to a dollar, in highly volatile trade. Dealers said while dollar demand continued unabated, there was hardly any fresh supply. The rupee opened at 47.96 and touched a low of 48.15. It closed at 47.93/94, against the previous close of 47.81/82.
The selling by foreign institutional investors was the major factor behind the 955-points fall of the Sensex on Wednesday, their net sales amounting to Rs 1,055 crore.
The Sensex was pulled up from its intra-day low of 10,740 as domestic financial institutions later stepped in, helping the market close above 11,000.
On the same day, central banks across the globe, led by US Federal Reserve and European Central Bank, cut interest rates by 50 basis points. The Chinese central bank too announced cuts in key interest rates.
On Thursday, the central banks of South Korea, Hong Kong and Taiwan followed suit, cutting interest rates. Bank of Japan announced an infusion of Yen 4 trillion, equivalent to approximately $40 billion, in the money market.
RBI, quite dramatically, as we mentioned earlier, announced on Friday a further 100 basis points reduction in the Cash reserve ratio (CRR) to 7.50 per cent from 8.50 per cent. This comes into effect from Friday.
The Sensex on Friday tumbled by a staggering 10 per cent to 10,239.76 in opening trade and later recouped from the day's massive low.
The stock markets faced heavy selling pressure as foreign funds dumped heavy-weight stocks owing to the contagion effect of the global financial crisis amid a steadily depreciating Indian rupee.
The Sensex closed at 10,527.85 points, down by 800.51 points from the previous close of 11,328.36. The S&P CNX Nifty ended at 3,279.95, down 233.70 points from the previous close of 3,513.65. It touched a low of 3,198.95 at the open.
Software major Infosys Technologies on Friday announced a consolidated second quarter net profit of Rs 1,432 crore a 30.18 per cent growth over the corresponding period a year-ago. The consolidated total income rose 28.73 per cent to Rs 5,484 crore, from Rs 4,260 crore in the same period in FY'08.
The Government on Friday cancelled the auction of bonds worth Rs 10,000 crore in view of the liquidity problems.
The RBI, earlier, had announced the sale of a new 6-year government stock for Rs 6,000 crore and sale of 7.95 per cent government stock 2032 worth Rs 4,000 crore. Both auctions, which were scheduled to take place on Friday,have been cancelled.
While even the hardened technical experts were not willing to hazard a guess on how the market will behave on Monday, it is generally expected that market blues may not lift so quickly, given the uncertain position in the international markets.
Compiled by S. Vasudevan
Podcast by S. Narayanamurthy
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