The bear party continues

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FII exodus wipes off Rs 1,30,042 cr of investor wealth in single day

Our Bureau

Mumbai, May 19

The hammering on Dalal Street continued on Friday, with exchanges and broking firms dumping stocks due to lack of margins. Market-unfriendly statements by Left leaders on reforms and taxing of foreign funds helped despatch the bellwether BSE-30 down 452.82 points, or 3.98 per cent, to below 11,000.

The S&P Nifty Index dropped 142 points or 4.19 per cent.

Foreign funds were net sellers to the tune of Rs 1,459.21 crore, their biggest single-day net sales in May 2006. From the market peak of May 11, the FIIs have made net sales worth Rs 5,226.41 crore; thus, for the first time since October their net investment has turned negative in a month. During the week the Sensex lost 1,346.50 points or 11 per cent.

After Thursday's mayhem, the Sensex opened positive on Friday, rising over 300 points to 11,697.11, before profit booking by foreign funds and margin sales by brokers cut short the recovery.

The Sensex fell to a low of 10,799.01, before closing at 10,938.61. The intra-day swing on Friday was over 800 points.

The S&P CNX Nifty fell by 403.15 or 11 per cent during the week to end at 3,246.90 points.

With margin pressures looming large on broking outfits, the NSE stepped in and squared off the positions of 11 clearing members during mid-session, dealers said.

In the last two days, the Sensex sank 1,279.20 points while the Nifty Index slipped 363.3 points.

"The bull run is definitely halted for this quarter. No doubt several investors have been hurt by the sharp fall in the last two days," said Mr S.P. Jain, Chairman and Managing Director of Networth Stock Broking.

Mr Pankaj Namdharani of SPA Securities added: "What investors gained during the last one year, they lost in a week."

Loss of investor wealth in the last two days together amounted to Rs 3,53,458.6 crore, the biggest ever loss in two consecutive days. On Friday alone the loss touched Rs 1,30,042.5 crore.

For the second day running, all Sensex and Nifty stocks ended in the red. On BSE-100, just four shares survived the meltdown, and on the BSE-500, 45 stocks hung on in the green.

"Cutting of leveraged positions and margin calls have also added to the sharp fall in the Indian capital market, which was increasingly being seen as `expensive'. We believe the markets may see a further 15-25 per cent correction form peak levels and then start consolidating for a fresh run," said Mr Nirmal Jain, Chairman and Managing Director of India Infoline.

Cipla, which fell by nine per cent, was the biggest loser on the Sensex, followed by Tata Steel (drop of 7.69 per cent or Rs 41.95 to Rs 503.50).

FIIs net sellers

For the first time in seven months, foreign funds turned net sellers in May when FII sales touched Rs 1,459 crore on Friday.

Till Thursday they were net buyers for the month at Rs 90 crore.

The last time FIIs were net sellers was in October 2005, when they made sales worth Rs 3,693.90 crore.

Despite the net sales of May, FIIs were net buyers during the first five months of 2006, at Rs 18,567.10 crore.

In terms of total holdings of foreign funds on Indian stock markets, the amount is Rs 1,94,009.30 crore or over $45 billion.

"This is just a correction. We still think India is an attractive market," said Mr Andrew Holland, Head of Strategic Risk Group, DSP Merrill Lynch.

According to him, foreign funds have been liquidating positions in emerging markets including India, but considering the FIIs' outstanding investments in India, the sales accounted for only a marginal share.

In terms of volatility too, Mr Holland said that several other emerging markets and even mature markets have seen similar volatility in the past. "It is not an unusual phenomenon."

However, according to JP Morgan, the recent surges in the equity markets and real estate are beginning to be worrying, despite the strong fundamental support for these asset classes.

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(This article was published in the Business Line print edition dated May 20, 2006)
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