Markets take another heavy blow, Sensex sheds 330pts

Markets slipped 2% following the rout in world equities on fears of a global recession, which may be far worse than 2008, and worries over the health of European banks.

The Sensex opened lower and extended losses soon after. The index slipped below 16,000 for the first time since May 2010 in the afternoon session to a low of 15,998. The Sensex recovered from day's low in the last leg of the trade, and closed at 16,142, down 328 points. The Nifty was at 4,845, down 99 points.  For the week, both the benchmark indices were down over 4% each.

Concerns over earnings downgrades and political instability loomed on institutional investors' mind. A K Prabhakar, Senior Vice President-Equity Research from Anand Rathi said, “The current market rout is linked to foreign investors pulling out money from politically affiliated companies as Karnataka mining scam and 2G Scam have left a bad taste.”  Foreign institutional investors have net sold Rs 6232 crore in the cash market since the beginning of August.

Credit Suisse in a research note to clients said, “Leverage of companies in 2011 is much higher than what was seen in 2008. For 50% of the companies which are linked globally may see EPS (Earnings Per Share) cut of 8% from 17% currently." The foreign brokerage bets on ITC, Hero Honda and Coal India as their top picks.

Asian markets have echoed last week’s fall as investors’ whisked away from equities on worries that European banks may fail to withstand the debt crisis, along with growth slowdown in the west.

The Nikkei Stock Average and Hong Kong’s Hang Seng indices declined almost 3% each and China’s Shanghai Composite plunged over 1%. European markets too have followed suit and were trading lower, extending Thursday's losses, CAC 40 and DAX dipped 3% each and the FTSE was off almost 2.5%.

Back home, Infosys (down 6%), ICICI Bank (down 3.7% , Larsen & Tourbo (down 5%)  and ITC (down 2.2%) accounted for a loss of 210 points on the Sensex. Other prominent losers were BHEL, Tata Motors and Sterlite Industries, down over 3% each.

There were only 9 components on the Sensex which ended in the green. JP Associates was up over 2% at Rs 60. DLF and Hero Motors were up over 2% each.

IT stocks were leading the losses for the second consecutive day on jitters that clients overseas may become cautious and cut their IT budgets. The BSE IT index slipped 4.4%, besides Infosys, mid-cap IT companies continued to lead the losses, Patni Computer fell 4.1%, Tech Mahindra declined 4% and Oracle Finance was down 3.9%.

Capital Goods index was the next worst hit, down 4.2% on concerns that major reforms may get stalled as the government was not able to handle the corruption and there may be an impasse in the monsoon session of parliament. Suzlon, Pipavav Shipyard and BHEL plunged over 4% each.

BSE Realty was the only index which ended on firm ground, up almost 1%. Prestige Estates rallied 4%, Indiabulls Real Estate and Anant Raj Industries gained over 2% each.

From the broader markets, the midcap and the smallcap indices fell over 1% each.
Market breadth was extremely negative, 2083 stocks have declined, for 773 stocks which advanced.