Bloodbath on Dalal Street

Rs 2,27,410 cr investors' wealth eroded; reports on FIIs to be taxed triggered fall.

Six weeks after the stock market underwent the first of a series of corrections after a five-month accelerated bull run, the mother of all tremors shook Dalal Street on Thursday.

With the market apparently abandoned by domestic as well as offshore institutional buyers, the BSE benchmark Sensex fell 6.8 per cent or 826 points.

In absolute terms, this is the steepest fall in its history. In percentage terms, Thursday's fall is the second sharpest, next to the 565-point fall on May 17, 2004, which dragged the index down by 11.14 per cent.

The Nifty fell 246.20 points or 6.77 per cent to 3,388.90. The single-day fall eroded Rs 2, 27,410 crore worth of investors' wealth.

It could have been much worse as at one stage the Sensex was down 862 points. The market was in the negative for the entire day but most of the damage was done in the last one hour when margin pressures triggered a huge sell-off. Till that time, there was a semblance of stability with the Sensex down about 500 points.

The currency market also felt the tremor with the rupee falling 29 paise to close at Rs 45.48 to a dollar against Rs 45.19 on Thursday.

The government bond prices too fell following a rise in US bond yields. The yield on the benchmark 10-year 7.59 per cent bond rose 6 basis points to 7.62 per cent.

The reasons for the free fall of stocks ranged from global sell-off to confusion over a government move to tax foreign institutional investors (FIIs), the meltdown of metal prices, and heavy profit booking.

It was in line with the correction happening in the region with the Jakarta Composite Index falling by 4.2 per cent and the Hang Seng by 2.1 per cent.

The Nikkei 225 average went below the 16,000 level in the morning "" the first time in two months "" and closed 1.3 per cent lower at 16,087.18. In Sydney, the S&P/ASX 200 lost 1.9 per cent to close at 5,119.3 while the Kospi in Seoul was down 2.6 per cent at 1,365.15.

"Thursday's market was a trap for people who had taken up huge positions in the derivatives market and were expecting a pull-back like the one on Tuesday," said Prakash Rajdev, chief dealer at Mumbai-based Khandwala Securities.

"This was the first healthy correction after a long time, triggered by talks of tax on FII profits in India and weak global markets. If markets got corrected by another 10 to 15 per cent, valuations would become really attractive for long-term investors," pointed out Nirmal Jain, CMD, India Infoline, which caters mainly for a large clientele of small investors.

According to the exchanges, the FIIs continued their sell-off on Thursday, getting rid of another Rs 865 crore worth of equities in the secondary market. With this, they have sold Indian equity worth Rs 4,215 crore in the last seven days alone, nearly double the figure for the whole of last month.

Though mutual funds had, in the past, bought vigorously in troubled times, analysts were divided on whether they are likely to repeat their rescue act in case the Sensex does an encore tomorrow. Some of them even suggested that a repeat of Thursday's correction might bring value back into the over-heated market.

A broker pointed out that Tuesday's recovery, attributed to heavy buying by mutual funds at the sub-11,500 level that the Sensex reached on that day, had been misread and that local funds were not the source of buying support on Tuesday.

"It remains to be seen where the support came from on Tuesday since mutual funds bought equity worth only Rs 343 crore on that day, whereas FIIs sold equities worth Rs 575 crore on the same day," the broker pointed out.

While markets began on a very raw note with the Sensex nearly 90 points below yesterday's close, the slide that followed was across the board, with not even one stock on the Sensex, Nifty or BSE 100 indices escaping unhurt.

The biggest losers were the commodity stocks with ACC, Hindalco and Tata Steel dropping by nearly 11 per cent followed by the rest. Hero Honda sustained the least injury with a 1.8 per cent loss in its value.

All Sensex stocks ended in the negative zone with as many as five stocks ending with losses in excess of 10 per cent each. ACC slumped 12 per cent to Rs 798; Gujarat Ambuja crumbled 9.5 per cent to Rs 99; Grasim crashed 8.5 per cent to Rs 1,986; Hindalco plunged 12 per cent to Rs 192 and Tata Steel tumbled 11 per cent to Rs 545.

Market breadth was extremely negative, with nearly 98.6 per cent of the "A" group stocks and 97.3 per cent of the "B1" stocks ending in the red on Thursday.

Out of the 2,529 traded stocks, 2,241 stocks declined and only 288 scrips were advanced. Total 154 stocks hit three-month lows.

Among the sectoral indices, BSE metal index fell 11 per cent (1,180.75) to 9,199.51 (10,380.26); consumer durables index 8.24 per cent (293.27 points) to 3267.52; auto index 7.24 per cent (412.45 points) to 5,282.71; capital goods index 7.20 per cent (631.54 points ) to 5,282.71 and oil and gas index 7 per cent (442.92 points) to 5,557.86. All the other sectoral indices ended with losses in excess of 5 per cent each.

Over all, 625 stocks closed at lower limit of circuit filter, one (RCF) from the A group, 56 from B1 group, 106 from B2, 59 from S, 269 from T, 86 from TS and 48 from Z group.