Bear cartel takes control

STOCK REPORT

Bears scored a convincing win on Tuesday, after winning by small margins in the previous three sessions. Indices shed 2 per cent on a broad sell-off, with stocks like Ranbaxy Laboratories and Videsh Sanchar Nigam Ltd (VSNL) falling 5 per cent each.

Dealers attributed the fall to unwinding of F&O positions ahead of the contracts expiry on Thursday, as a key reason.

The slowdown in foreign fund purchases, too, deterred traders from buying afresh, dealers said.

The Sensex closed at 7615.99, down 134.61 points, while the Nifty fell 41.75 points to 2326.10.

With Tuesday's fall, the Sensex has retreated around 4 per cent from its life-time high of 7921.39, touched on Thursday.

Indices opened on a sluggish note and steadily kept going down, with the fall accelerating in the last couple of hours. Mid-cap stocks, too, took a beating with the CNX Mid-cap Index falling around 2 per cent. Only two shares in the Nifty "" ITC and Tata Motors "" closed higher.

India was the worst performer among key Asian markets on Tuesday, which were mostly lower. Bears were in full strength, with 77 per cent of the total traded stocks on the BSE ending lower. In the A group comprising large caps, 91 per cent of the stocks finished down.

Among prominent losers, Bajaj Auto, Steel Authority of India, Mahindra & Mahindra, Larsen & Toubro, and Cipla fell 4 per cent each, while Gujarat Ambuja Cements, Dabur India, Reliance Energy, Satyam Computer Services, Zee and Oil and Natural Gas Corp shed 3 per cent each.

Most players were expecting the market to weaken on Tuesday but were surprised by the extent of the fall. Foreign fund flows in the coming days will be crucial as many players feel that the market is in an overbought zone.

Already many foreign investment banks have been cautioning their clients that the Indian market is beginning to look stretched in terms of valuations. Investment bank Morgan Stanley has said the Indian equity market's P/E ratio is unlikely to rise in the remainder of calendar 2005.

Among the big losers in the NSE Mid-cap Index, Bank of Maharashtra, Rashtriya Chemicals & Fertilisers, Sterling Biotech, Gujarat NRE Coke and Britannia Industries, Ispat Industries, Bombay Dyeing and Manufacturing Co., Indiabulls Financial Services and Glenmark Pharmaceuticals fell between 5-7 per cent.

In key announcements on Tuesday, HCL Technologies reported a 48 per cent y-o-y rise in its fourth quarter net profit. Company chairman Shiv Nadar reaffirmed the growth target of 30-40 per cent in its topline and bottomline for each of the next three years. However, the stock closed 2 per cent down at Rs 438.35.

MRF was the top gainer in the mid-cap index, up 5 per cent at 3136.45. The stock has risen around 22 per cent in the last three sessions on persistent market talk of a bonus share issue or stock split. The company had denied the talk last week.

Indraprastha Gas and Jindal Saw were the other major gainers, up 3 per cent each.

"The drastic fall (in the market) was due to the squaring up of positions in August futures. Also, there wasn't much buying in September futures, which fuelled the fall," said Abhishek Gupta, dealer, Khandwala Securities.

He said the open interest build-up in futures of Reliance Capital, Reliance Industries and VSNL hit the market wide limit, and no fresh positions could be taken in these stock futures. As a result, many traders squared off their existing positions, triggering the fall.

"Nifty could slip by another 30-40 points in the next two sessions, if Tuesday's trend (squaring of positions) were to persist," Gupta said.