Basket selling by FIIs catches market unawares

Sensex falls 252 points, Nifty loses 80 points in late sell-off

Key indices fell a little over one per cent on Thursday, their highest decline in a single day in about a month, led by a sharp sell-off in the last hour of trading. Bank shares led the fall, while NSE's Volatility Index (VIX), a measure of traders’ near-term expectations of a near-term risks based on Nifty options prices, surged 6.2 per cent.

The NSE Nifty ended the day down 1.3 per cent, or 80 points, at 6,221. BSE’s Sensex fell 1.2 per cent, or 252 points, to close at 20,888.

Markets, which were trading firm till about 1:30 pm on Thursday, dropped suddenly amid speculation that basket-selling by a few foreign institutional investors (FIIs) triggered the decline. (HEAVY BASKET)

“There was some basket-selling in the Nifty by some FIIs who perhaps wanted to make some headroom before the results season. The rationale behind the move is to generate cash in the portfolio ahead of the result season so that they are prepared for any buying opportunities that could come up during the season,” said Deven Choksey, managing director, K R Choksey Securities.

However, according to provisional data on the exchanges, FIIs on Thursday net bought shares worth Rs 674 crore, while domestic institutions net-sold shares worth Rs 189 crore.

Another theory doing the rounds on Dalal Street was that a group of operators, led by a an astute Dalal Street veteran, started selling, which drove the markets into a tizzy. Analysts said lower volumes aided the sellers. The rise in yield on the 10-year benchmark US bond to over three per cent, the highest level in more than two years, and is also weighing on sentiment.

Other Asian markets came under pressure after disappointing Chinese manufacturing data indicated slowdown in domestic demand. Indian markets were among the top five underperforming Asian markets of the day after Thailand and South Korea.

Market watchers said the focus will turn to that domestic economic data, particularly inflation data, and quarterly earnings number announcements starting this month.

“There could be some more profit-booking in the days as FIIs position themselves and trade keeping in mind the quarterly numbers and other domestic data. Also, there is redemption in the global markets, the impact of which would trickle down to Indian markets,” said Rikesh Parikh, vice-president (equities) at Motilal Oswal Securities.

However, analysts said they were not unduly concerned about the plunge in the market as they believe valuations had run-up in the last few trading sessions before the end of 2013.

“The bigger names in the market have not seen a huge correction. Valuations in some of the stocks have been very high and FIIs took advantage of it. A bigger concern is the low volumes, which is making our markets vulnerable at this point,” said Yogesh Nagaonkar, head of institutional equities at Bonanza Portfolio.

On Thursday, stocks of rate-sensitive sectors such as banking, capital goods and realty sector took a beating. Among banks, some of the large-cap names such as ICICI losing two per cent during the day along with HDFC Bank, SBI and Axis Bank, which fell by 1.2 per cent, 1.3 per cent and 1.5 per cent, respectively.

Other big names that saw a steep fall were IDFC, JP Associates, L&T, and Tata Power, among others, falling more than three per cent each.