Sub-prime fears spook markets

In yet another day of volatile trades, the bears tightened their grip on the markets. The Sensex fell to its lowest since the Fed rate cut of October 31 due to concerns that problems relating to sub-prime mortgage will deepen, creating ripples across Asia and other emerging markets.

Bombay Stock Exchange's Sensex, which fell by over 500 points at opening, recovered almost 330 points from its day's low to end at 18,737.27, down 170.33 points, or 0.9 per cent. The Nifty closed 0.81 per cent lower, or 46 points, at 5,617.10.

The BSE small cap (down 1.41 per cent) and mid-cap (down 1 per cent) indices fell more than the broader indices.

Cues from global markets, coupled with reports that US' fourth largest bank, Wachovia had announced potential loss of $1.7 billion on mortgage-related debt added fuel to the already falling markets.

The latest IIP numbers were also not very soothing as the figures dropped to 6.4 per cent, a sharp fall from 12 per cent in the corresponding month last year, due to sluggish manufacturing and electricity output.

Globally, Dow Jones and Nasdaq ended in the red on Friday, hitting the sentiment across Asia. Nasdaq lost 68.06 points, while the Dow Jones tumbled by 223.55 points.

The impact was seen in indices across Asia. Japan's Nikkei shed 386 points to end at its lowest level since July 2006. Korea's Kospi and Taiwan also lost heavily.

The day was marked by extreme volatility, leading to short-covering during the closing hours of trade. Dealers said that lot of profit booking was seen in mid and small caps.

Dinesh Thakkar, managing director, Angel Broking, said, "Market is in a correction and consolidation phase. It will take some time to come to actual levels. We may see markets at 17,500-18,000 by the end of this year. Liquidity has not dried up in India and we might see another spell of the bull-run after this correction is over. Global cues will only have a sentimental impact as the fundamentals of Indian economy are strong and we do not have much of a global exposure."

Foreign institutional investors were net sellers on Monday, offloading Rs 1,194.38 crore worth of stocks. Domestic institutions, including banks, insurance companies and mutual funds purchased a meagre Rs 65.99 crore.

BSE Realty index was the biggest loser, crashing by 3.08 per cent. The newly introduced power index comprising 14 power stocks ended 0.16 per cent higher at 4,394.15. BSE IT index was the second biggest loser among the sectoral indices, down 2.78 per cent.

ITC gained 5.30 per cent to Rs 177.85 and NTPC 5.03 per cent to Rs 253.50.