Markets not in sync, Sensex crashes 223 pts

The markets blew a fuse over the new government's CMP and fell 237 points intra-day.

The Bombay Stock Exchange Sensex touched the day's low of 4821.59 before recovering marginally to 4835.39, down 4.41 per cent (223.16 points) over Thursday's close. It was the fourth day of decline for the index. The National Stock Exchange (NSE) Nifty fell 77.65 points to close at 1,508.75.

Investor wealth worth Rs 51,256 crore (market capitalisation) was lost today, with 28 of the 30 Sensex scrips closing lower. The broader market was also negative, with only 296 gainers versus 1,387 losers on the BSE. The rupee also caught the blues, ending lower at 45.47/50 per dollar, down for the fifth straight day.

Investors were unimpressed by the CMP, which will be the new Left-supported government's economic blueprint. The CMP was released on Thursday after the markets closed for the day. Brokers expressed fears of a slowdown of economic reforms under the new Congress-led dispensation.

The day saw across-the-board selling, with public sector shares taking a beating. The BSE PSU index was the biggest loser today, falling 6.36 per cent, followed by the Bankex, down 6.30 per cent, and the BSE IT sector index (down 5.41 per cent). The BSE TECk index fell 4.78 per cent and the consumer durables index 4.40 per cent.

The State Bank of India scrip was the biggest loser in the Sensex basket, falling 8.67 per cent to Rs 484.85, followed by Reliance Energy, down 7.46 per cent to Rs 497.75, and Hero Honda, down 7.38 per cent to Rs 452.20.

The only two Sensex gainers were Zee Telefilms, which gained 1.38 per cent to Rs 128.90, and Hindalco, up 1.21 per cent to Rs 925.80. Heavyweight Reliance Industries fell 4.07 per cent to Rs 431.05, ITC was down 3.63 per cent to Rs 882.90 and HLL 2.21 per cent to Rs 137.25.

Many investors dumped power stocks as the CMP called for a review of the Electricity Act, which was universally heralded as a major gain for reforms. Tata Power was down 7.24 per cent to Rs 274.90 and Bhel fell 3.90 per cent to Rs 462.80.

Says Nandan Chakra- borty, head, research, Enam Securities: "The CMP is very ambiguous and we will have to now look at the monsoons and then the Budget for fresh impetus."

Ambareesh Baliga, vice-president, Karvy Stock Broking, said, "The CMP gives no clear indications and the markets will remain range bound in the near term."

Don Bosco Michael, senior vice-president at Parag Parikh Securities, said, "The fall today can be attributed to uncertainty in the market over the Electricity Act and the fate of public sector banks. People are also worried on the tax front. With disinvestment off the agenda, there might be more corporate taxes, especially with regard to the IT sector. We expect the market to remain in this state of uncertainty until the Budget. There are no buyers in the market."

MTNL was down 7.34 per cent to Rs 111.70, ONGC fell 6.69 per cent to Rs 649.55 and HPCL was down 3.03 per cent to Rs 313.50. Maruti Udyog was down 7.02 per cent to Rs 404.60 and Tata Motors fell 6 per cent to Rs 386.75.

Wipro fell 6.33 per cent to Rs 1,504.50, Satyam Computer was down 4.79 per cent to Rs 305.05 and Infosys Technologies was down 4.63 per cent to Rs 5,056.85.

Volumes in the market were higher than on Thursday, with the BSE registering a turnover of Rs 2,323.49 crore and the NSE Rs 4,890.88 crore in the cash segment.

Brokers say that any slowdown in the pace of reforms will be a cause for concern. Also, if the government ends up increasing the subsidies bill for farmers, it could worsen the fiscal deficit. Market participants are now closely watching developments on the petroleum price front to see if the government has the will to take tough economic decisions.

Bonds plunge, Rupee slips

Overnight call money rates on Friday rose to a 14-month high of 6.50 per cent, bond prices crashed, pushing the benchmark 10-year paper yield to 5.25 per cent, and the rupee slipped to touch a high of 45.60 intra-day against the dollar before closing at 45.48 on Friday.

The spot rupee lost 20 paise during the day after opening at 45.38/40 to the dollar, with aggressive dollar buying by banks facing month-end oil payments.

The Reserve Bank of India's intervention in the spot as well as cash dollar market helped the rupee to close at 45.48/50 to a dollar, said dealers.

It also helped the cash dollar (today's dollar ) to close at a discount to the dollar valued tomorrow, thus reversing the trend of cash dollar commanding a premium till now.

The overnight call rate shot up as banks scrambled for funds to meet reserve requirements amid a shortage caused by outflows for a state loan sale.

Large public sector banks had little surplus left to lend to the overnight market after parking funds at the RBI's seven-day repo window. Call money ended at 6.50-6.75 per cent "" a level not seen since April 19, 2002.

Government bond prices fell across maturities as banks preferred to sell gilts to have cash as most of their funds were parked in the RBI's repo facility.

While bond prices fell by 50-60 paise across maturities, the yield on the 10-year benchmark 7.37 per cent 2,014 rose to 5.25 per cent, versus a close of 5.21 per cent on Thursday. The yield has risen seven basis points so far this week amid worries that rates have bottomed out.

Partha Mukherjee, head of treasury, UTI Bank, said the markets would remain volatile at least till the Budget. Amit Bansal, head of treasury at Barclays, said the bond market would continue to remain weak.

The rupee may remain under pressure if foreign funds keep buying dollars. Foreign funds have been net sellers in the equity market in 16 of the past 18 sessions. Their net sales of shares was to the tune of $800 million, a fifth of what they had invested in the first four months of 2004.