Banking, IT drag Sensex 386 points

Banking and IT shares pulled down the benchmark indices on Friday. Investors expect the banking sector to report earnings losses due to softening interest rates.

The IT sector, which relies mostly on revenues from the US, may be impacted by a contraction in the world's largest economy. Foreign institutional investors, which sold a net of Rs 709.54 crore on Friday, accentuated the fall.

The Sensex was down 2.17 per cent, or 385.61 points, to 17,349.07. With Friday's fall, the benchmark index has lost 766.18 points, or 4.23 per cent during this week.

BSE's Bank index was the top loser among the sectoral indices. It shed 3.14 per cent, with HDFC Bank weakening by 4.40 per cent to Rs 1,474.95, ICICI Bank down 3.89 per cent to Rs 1,099.40 and State Bank of India losing nearly 3 per cent to Rs 2114.70.

"The highly uncertain external environment and risk aversion among global fund managers may keep the Indian markets volatile for a few months. After the big sell-offs in 2004, 2005 and 2006, it took five to seven months for emerging market equities to regain old highs," said Vijay Gaba, equity strategist at DSP Merrill Lynch India, in a note to clients.

The market breadth failed to offer any comfort either, with 1,773 declining stocks as against 953 advances.

Even the market turnover was low. The retail and high net worth investors are yet to regain their confidence after the market crash of January 21 and 22.

"There is no life in this market. Investors are not rolling over their positions ahead of the derivatives expiry next Thursday," said a dealer in a local brokerage house.

Bajaj Auto, which shed 4.78 per cent to Rs 2,295.60, was the worst performing stock on Friday and this week.

A report by Merrill Lynch suggests that if the US were to go into a recession and pulled the world along, India is still likely to grow at 6.5 per cent. This is a decent number compared with 4 per cent growth seen during the previous global shocks of FY1998 and FY2001.