Sensex pulls out of tailspin

After three consecutive days of fall, stock markets made a smart rebound today on the back of big buying by mutual funds and foreign investors, though the recovery was marked by large swings intra-day, with bulls and bears fighting hard to wrest control.

The benchmark Bombay Stock Exchange (BSE) Sensex gained nearly 186 points (1.4 per cent), after losing over 800 points in two days of correction triggered by weak industrial growth figures, a hike in the cash reserve ratio, and fears of costly stock valuations. The broad-based S&P CNX Nifty lifted 48.30 points (1.4 per cent) to 3,765.20.

The Sensex showed swings of about 400 points "" the index went below yesterday's close intra-day "" before buying by mutual funds and foreign investors saved the day.

Analysts said they expected the market to see a correction of at least another couple of hundred points from here, as stock valuations were still tilted towards "unrealistic" levels.

"We expect the Sensex to stabilise at around the 12,500 level. The valuations are still at a stretched level," Rochak Gupta, a research analyst with Almondz Capital Market Pvt Ltd, said.

Banking stocks, which have seen the maximum correction, surged ahead today, with State Bank of India gaining 4.1 per cent to Rs 1,228, and ICICI Bank up 3.07 per cent to Rs 830.30. The BSE Bankex was the biggest gainer among sectoral indices with a nearly three per cent jump.

Among Sensex stocks, Reliance Communications was the biggest gainer, reaching Rs 433.15, a jump of 7.36 per cent.

Grasim (up 4.29 per cent to Rs 2,613.85), Dr Reddy's (up 3.95 per cent to Rs 784.10), Bharti AirTel (up 3.75 per cent to Rs 598.75) and ACC Ltd (up 3.61 per cent to Rs 1,007.50) were the other top gainers on the Sensex.

Index heavyweight Reliance Industries rose by 2.49 per cent to Rs 1,238.10. All sectoral indices except FMCG (down 0.48 per cent) ended in positive territory.

ONGC topped the losers chart with a loss of 2.04 per cent to Rs 789.10. HLL (down 1.92 per cent to Rs 219.40), Tata Steel (down 1.08 per cent to Rs 435.65) and Infosys (down 0.62 per cent to Rs 2,150.50) were the other losers.

"We think the markets would continue to remain weak for the next few days. Today's movement was more because some players consider a correction to be an opportunity to invest, which reflected in a gain for the indices. However, the concerns over valuations continue," Alpa Shah, research analyst with Khandwala Securities Ltd, said.

The Sensex, which breached the 14,000 barrier intra-day on December 5, has lost nearly 5.65 per cent (790.69 points) since December 7, when it closed at an all-time high of 13,972.09. The index went below the 13,000 mark on December 8, after the Reserve Bank of India decided to restrict credit flow into the economy.

Vikas Khemani, co-head of institutional equity at Edelweiss Securities, said, "We don't expect the markets to go up in a hurry. It will be range-bound at these levels."