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Weak factory output numbers and negative global cues sent the equity market into a tailspin on Monday. The Sensex plunged 365.23 points, or 2.17 per cent. The Nifty closed below the 5000-level at 4,946.80 points.
“On August 12, when the June 2011 Index of Industrial Production was 8.8 per cent, the Sensex was down 1.3 per cent. At 3.3 per cent, the Sensex has again seen a two per cent drop today. The fear factor engendered by uncertainty in Europe is also at play,” said Mr Chokkalingam G., Executive Director and CIO, Centrum Wealth Management.
The IIP number for July 2011 at 3.3 per cent was much lower than the market expectation of 6.2 per cent.
The European equity markets opened the week in the red and were down by more than 2 per cent by the time the Indian market closed. “While global cues have been negative for a while, there is a lot of uncertainty related to Greece. There is a possibility that Greece is headed towards a default,” said Mr. Vivek Mahajan, Head – Research, Aditya Birla Money.
The market is likely to be choppy, say experts, what with the expectation that the Reserve Bank of India will raise the key rates by 25 basis points to curb inflationary pressure. However, inflation numbers are expected to show signs of easing.
Dollar up on haven buying
The rupee fell to levels last seen 14 months ago on fears of the debt crisis in Euro zone; it also tracked the big fall in the equity markets. On Monday, the rupee opened at 46.93 and closed at 47.22, a level last seen in July 2010. On Friday, the rupee had closed at 46.56.
Fears of a Greek sovereign debt default saw a flight of investors to the dollar, which is considered a haven currency. “Due to the Euro zone problem, the dollar index is going up. This is putting pressure on all other currencies,” said Mr Pawan Bajaj, General Manager, Treasury, Bank of India.
Investors also fear a bubble-like situation building in gold, which is another reason for the huge demand for the dollar.
The BSE saw 875 advances against 1,929 declines. On the exchanges, foreign institutional investors were net sellers at Rs. 934.74 crore, while domestic institutions were net buyers at Rs. 427.93 crores.
Retail investors were net buyers on the BSE at Rs. 102.11 crore, the highest in over a month.
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