Benchmark indices logged their biggest single-day loss in seven months Thursday, as the slide in European shares unnerved investors in India as well.
Brokers said unwinding of derivatives trades could have been one of the major reasons for the collapse. It is not clear if foreign institutional investors were sellers in a big way, but many players feel that could well have been the case.
“In our view, FII flows are the biggest risk to the market. They have crossed 2 percent of market cap on a 12-month trailing basis, which has historically been a warning sign for prospective equity returns,” said a Morgan Stanley note to clients this morning, adding, “The trigger for a reversal of flows comes from a global risk off which is hard to time.”
So far in 2013 alone, FIIs have net bought around Rs 43,000 crore worth of shares, coming on the heels of Rs 1.3 lakh crore of net purchases in 2012.
Unlike in the previous weeks when investors were mostly dumping midcap and small cap shares, Thursday’s crash was broad-based.
“I don’t think any kind of negative perception has started building up. This seems to be the pure global effect and may be because of the FII risk-off (outlook),” investment expert SP Tulsian said in an interview to CNBC-TV18.
Market expectations are low ahead of the Union Budget next Thursday, as the widely-held view is that Finance Minister Chidambaram is likely to focus on fiscal consolidation through expenditure cuts. While this would help avert a sovereign rating downgrade, it would also delay economic recovery, say analysts.
ABB, JSW Steel, JSW Energy, Pantaloon Retail, Shriram Transport and Sun TV were among the big losers of the day, shedding between 5-8 percent.
Shares from the FMCG, pharma and IT shares fared slightly better as investors sought refuge in defensive sectors.
Videocon Industries was the top gainer, rising 5.2 percent. Glaxosmithkline Consumer, Godrej Consumer, Glenmark Pharma and Hexware rose between 0.5-2.0 percent.
“There are low expectations on the Budget and in the absence of that investors are again getting focused on what is happening in the global markets. The Fed minutes which came out spooked Asia and that has followed on through to our markets and to Europe as well,” Dipan Mehta, member, BSE & NSE, said in an interview to CNBC-TV18.
“Now, we are seeing a lot of global commentators being worried about the turn in the interest rate cycle globally which means that if the Federal Reserve is going to follow a slightly tighter monetary policy then that is going to have an impact on all risky assets and commodities and emerging markets are amongst the risky assets,” he said.
The BSE Sensex is down over 1.5 percent at 19,356 and the 50-share Nifty slips 1.57 percent at 5857, heading towards their biggest single day fall since October 8, 2012.
Even as Budget session highlighted measures taken to revive economy, equity market witnessed serious cuts in the afternoon trade amid high volumes. Sensex crashed 200 points to 19445.06 and Nifty fell 58 points to 5885.
At 11.24 AM, the Sensex fell 179.50 points to 19463.25, and the Nifty slided 51.55 points to 5891.50. ICICI Bank corrected more than 2 percent and DLF, which was an outperformer in the last few sessions, fell over 2 percent. ,
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