Weekly Review: Markets sink 4%, IT shares plunge

Markets slipped over 4% this week as jittery investors removed money from equities on concerns of global recession and sovereign debt crisis in Europe.

The markets echoed the sell-off seen a week ago when S&P downgraded the credit rating of United States. Nifty commenced the week on an upbeat note following relief rally across the globe, but gave into selling pressure soon after as concerns over global growth and high debt in Euro-zone countries affecting the banks credit, weighed on investors mind.

The Nifty slipped below 4,800 and touched a low of 4,796 and the Sensex also dropped below 16K, to 15,988 for a brief period on Friday. Both the indices fell to their lowest level since May 2010. The Nifty recovered marginally and closed at 4,845, down 95 points and the Sensex ended at 16,142, down 328 points.

Alex Mathews, Head of Research from Geojit BNP Paribas said, “Nifty may see a low of 4,700 before the futures and options expiry in coming week, which will followed by a bounce back. However in the long term markets look negative due to the macro concerns.”

Analysts are concerned about political instability and big ticket reforms getting stalled once again. Activist Anna Hazare began the anti-corruption campaign in New Delhi by starting a hunger strike and demonstration, pressuring government to enact reforms to fight corruption.

Mid-week foreign brokerage Goldman Sachs in a note, "said world economy is dangerously close to a recession,” and cut the global growth forecast from 4.2% to 3.9% for 2011-12 on concerns of policy errors in Europe and US.

Amit Chhedha, Head of Equity from Inventure Growth Securities said, “There is no clarity on European crises as well as US debt issues and also back home there is a major political mess going around. “ These factors were creating panic among institutional investors. Foreign Institutional Investors have been net sellers of over Rs 7000 crore so far in August according to the Securities and Exchange Board of India data.

Earlier in the week Inflation for the month of May was reported at 9.2%, fueling expectations that Reserve Bank of India may hike rates again during the September policy.

Across the global, US markets extended their losing streak for the fourth consecutive week. The Dow Jones Industrial Average and Nasdaq lost between 3-5% this week. While in Asia, Hong Kong’s Hang Seng, China’s Shanghai Composite and Japan’s Nikkei Stock Average lost between 1-3% each.

Among the sectoral indices, IT index declined on jitters that clients overseas may become cautious and cut their IT budgets. The BSE IT index slipped 5.3% to 4,738 through the week. The sector has not been able to recover after S&P cut US ratings to AA+ from AAA.

Meanwhile, Banking and realty stocks slumped. BSE Bankex shed 7.5% to 10,763 on fears that the recent rate hikes by the RBI will hurt borrower's ability to repay loans. Realty index was down 7.3% at 1,674.

Auto stocks declined on concerns higher interest rates could crimp sales of automobiles. BSE auto index dropped 4% to 8,188.

Among individual stocks, ICICI Bank crashed 11% to Rs 833.

Tata Motors dropped 11% to Rs 713 after global sales declined 6% to 85,392 units in July 2011 over July 2010.

Metal stocks dropped with Hindalco and Jindal Steel down 7% and Sterlite slipping 6.3% in this week. DLF dropped 7% to Rs 187 after being imposed a fine of Rs 630-cr by competition regulator for abusing dominant market position.

SBI, Maruti Suzuki, Wipro, Infosys, Larsen & Toubro and HDFC were the other major losers.

On the other hand, Hero Motocorp surged in an extremely weak market and ended up 5.4% at Rs 1,994. The company, which has just released its new brand after ending its partnership with Honda Motors, aims to increase annual revenue to $10 billion and two-wheeler sales to 10 million units a year in the next five to six years, as it expands in overseas markets and hopefully benefits from strong local demand.

Coal India gained 2.2% to Rs 394 after tipping Reliance to become India's most valued company earlier this week. Meanwhile, ONGC overtook Reliance for a short-while to become the second most-valued firm on Friday. ONGC ended down 1.3% this week, while Reliance lost 4%.