Sensex caught in global tailspin

Index loses 151 points, closes below 8,000

Shares tumbled for the third consecutive day today, moving in tandem with the trends in global markets. Foreign funds continued to be sellers in the market, but the fall was accentuated when retail investors, unable to meet margin requirements, began selling.

The Sensex fell sharply to breach the psychological 8000 level, closing 151.19 points down at 7971.06. During the day, the Sensex touched a low of 7922.89. The Nifty ended at 2412.45, down 2.3 per cent. With today's fall, the Sensex has lost 10 per cent from its peak level.

Asian markets were weak, too, on selling by foreign funds. Singapore's Straits Times Index and South Korea's Kospi Index were down nearly 3 per cent. Back home, foreign funds have been pulling out money, prompted by the depreciation in the rupee and higher valuations.

In the past few sessions, some large foreign funds have been on a selling spree. A large Japanese fund, which was a significant buyer till recently, had turned a seller. Besides, a domestic fund, synonymous with the value-investing philosophy, was also on the selling side.

"The market has fallen as FIIs have been on a selling spree for the last two weeks and also on concerns accompanying the continuous fall in the rupee," a dealer said.

But today, the foreign funds' selling was relatively low," he said. "There seems to be more bearish voices right now than when the Sensex hit 8000 for the first time. The Indian stock market still looks very expensive compared with other emerging markets. Our year-end target remains 8000, " said Andrew Holland, executive vice-president, research, DSP Merrill Lynch.

For the record, the MSCI India index currently trades at 16.8 times trailing earnings, the highest in the region. Though the recent decline in stock prices have made stocks less expensive, the fall in several other emerging markets has been equally steep, making Indian equities expensive on a relative basis.

So far in this month, FIIs have pulled out Rs 1075.40 from the cash market. However, today, while the FIIs pulled out Rs 223.80 crore from the cash segment, they were net buyers to the extent of Rs 1108 crore in the futures segment.

"The rise in US interest rates coupled with foreign funds booking profits have aided the downward spiral," said Vipul Sharma, senior associate, equity sales, Darashaw Broking.

In today's trade, the market breadth was overwhelmingly negative with over 9 shares declining for every one that advanced. The small and the mid-cap segments were the worst hit with the respective BSE indices falling 3.90 per cent and 3.14 per cent.

Other big sectoral losers were metals and consumer stocks. The BSE metals index and the consumer durables index were down nearly 3.5 per cent.

"The Sensex should hold at the 7950 level, below which it can find its support at the 7750 level," said Hitesh Sheth, head of technical research at Prabhudas Lilladher.

Though the markets are riding on high volatility, brokers do not perceive any threat to the long-term bull run. The markets are slowly getting driven by individual stock performance, rather than sectoral or overall market performance.

"Investors are getting more cautious and are going in for fundamentally strong companies, unlike the mob attitude which pervaded the market during its recent rally," said an analyst from a leading broking house.