Institutional sales hit Sensex 279 pts

The stock markets cracked on Wednesday as the benchmark Sensex shed 279 points (nearly two per cent) as the institutional investors resorted to profit-booking on fears that stock valuations look stretched at the current levels. But the IT stocks bucked the trend as the market does not expect the rupee to appreciate further.

The Sensex closed at 14,255.93, ending a nine-day run. The broad-based CNX S&P Nifty dipped 86.40 points (2.02 per cent) to 4198.25 points, as institutional investors booked profits by mainly selling the large-cap stocks. While most of sectoral indices ended down by over 1 per cent, the IT index ended down by 0.25 per cent.

Analysts view the fall as a healthy correction, adding that selling activity could continue for a day.

"This correction will bring down the valuations to sustainable levels. The rally in the last few days was driven by some specific stocks and it had narrowed down in the last three sessions. This correction could continue for one more day," Sashi Bhuashan, vice-president, IL&FS Investsmart said. He sees the Nifty gaining support at 4120, which is 78 points away from Wednesday's close.

The market on Wednesday began on a positive note, gaining 15 points to 14,255.93 points. However, selling began in derivatives as the Nifty futures went down from a premium of 3 points to a discount of 20 points within an hour. In the afternoon session, the selling activity spread to equities. The traders mostly sold oil, auto and banking stocks. The day's high was 14,590.82 points.

Market sources said the banking stocks, which were significantly up in the morning, came down on rumours of liquidity tightening measures by the Reserve Bank of India.

Only three Sensex stocks ended in the green. Hindalco, rumoured to be a takeover target of the Alcan-Sterlite combine, rose 1.84 per cent to Rs 148.75.

The scrip is now up 5.83 per cent since last week. Reliance Communications gained 0.98 per cent to Rs 515.55, Satyam Computers to Rs 465.35 (up 0.43 per cent) and Grasim rose to Rs 2,451.80 (up 0.04 per cent).

Tata Steel was the biggest loser, as it lost Rs 23.45 (3.66 per cent) to Rs 617.70. HDFC shed 3.51 per cent to Rs 1,830.70, Tata Motors to Rs 687 (down 3.37), SBI to Rs 1,388.20 (down 3.35 per cent) and Reliance Industries to Rs 1,687.35 (down 3.31 per cent).

"This sell-off is neither an unusual act by the institutions nor a sign of a meltdown. Infact, this will bring down entry levels for the retail investor. The trading volume has been not been satisfactory and there was very little retail participation. This could reverse if the levels go down," said a fund manager with SBI mutual fund.

The mid cap (down 1.26 per cent) and small cap (down 1.29 per cent) indices shed lesser points compared with the Sensex. All the BSE sectoral indices ended in red. Oil&Gas was the biggest loser, shedding 3.15 per cent, followed by the PSU index, down 3.01 per cent. Metals, consumer durables and bank stocks were the other significant losers.