Bloodbath on Dalal Street

Sensex slumps 400 points; no need to worry: FM.

The bear hug tightened on Monday as key stock indices slumped to their biggest single-day fall in six months, triggered by Friday's unexpected cash reserve ratio hike announced by the Reserve Bank of India (RBI).

The Bombay Stock Exchange's benchmark 30-share sensitive index, Sensex, plunged by 537.76 points, or 3.89 per cent, mid-way through the session, before partially recovering to end at 13,399.43, down 400.06 points, or 2.90 per cent, from Friday's close.

The S&P CNX Nifty shed 112.5 points, or 2.84 per cent. This is the biggest single-day fall in the indices since June 12, when the Sensex fell by 3.40 per cent.

The 10-year gilt also fell farthest since April 2005, the biggest fluctuation of government debt instruments on Monday.

"The markets have gone up a lot in recent times. It is a very small fall compared with the recent run-up. I do not think this was unexpected," said Andrew Holland, head of the strategic risk group of DSP-Merrill Lynch. "There is nothing to panic about," Holland added.

In Delhi, Finance Minister P Chidambaram said the fall was not a cause for worry. "There is no need to worry. Stock markets are at their highs. Bank stocks are falling because of the hike in the cash reserve ratio," he said.

Banking counters were the target of the selling spree after analysts felt the hike in the cash reserve ratio would come in the way of higher lending by banks.

The mood was also negative in the broader market, with declining stocks beating gainers by more than three to one in a volume of 257 million shares traded.

"The hike in the cash reserve ratio has triggered the correction to a certain extent. Bank stocks are heavily weighted in the Nifty and the Sensex," Mahesh Bhagwat, head, equities, MAPE ADMISI Securities, said.

Not surprisingly, the BSE Bankex was the biggest loser among all sectoral indices with a loss of 6.43 per cent, or 463.96 points, to 6,749.78. It was followed by the BSE Metal Index, which fell by 4 per cent, or 361.45 points, to 8,679.74.

State Bank of India, which lost Rs 110.75, or 8.18 per cent, was the biggest loser in the Sensex. The other top four losers were ICICI Bank (down Rs 57.30, or 6.54 per cent, to Rs 819.40), ACC (down 6.25 per cent, or Rs 69.05, to Rs 1,036.20) and Tata Steel, which is facing the heat from Brazil's Companhia Siderurgica Nacional for acquiring Anglo-Dutch steelmaker Corus, was down 6.01 per cent, or Rs 29, to Rs 453.40.

"Monday's fall is an over-reaction. People are still to get over the May-June fall," Rahul Rege, head of non-institutional business at Brics Securities, said.

All Sensex stocks ended in the red, while just three stocks in the BSE-100 closed higher than Friday.

Telecommunications firms also contributed to the decline. Bharti Airtel was down 4.1 per cent while Reliance Communications shed 3.9 per cent. Significantly, the weak domestic market on Monday was in contrast to higher global indices.

The US Dow and Nasdaq had a flat to positive closing on Friday. All major Asian indices also closed higher on Monday, like Japan (up 0.67 per cent), Hong Kong (up 0.99 per cent), South Korea (up 0.02 per cent) and Singapore (up 0.72 per cent).