RBI diktat spooks mkts, Sensex down 134 points

Stock markets continued to slip further for the fourth consecutive day, with the Sensex closing sharply lower on Tuesday.

Liquidity glitches, weaker institutional buying and nervousness ahead of the expiry of August futures dragged the Sensex down 134.61 points. The index closed at 7615.99, losing 1.74 per cent.

According to market sources, the new directive by the Reserve Bank of India (RBI) to disallow banks to extend temporary overdraft facility (TOD) unnerved brokers. An RBI source confirmed that the apex bank had directed banks to stop TOD with immediate effect.

To make things more difficult, brokers will now have to shell out extra money as collateral for the extreme loss margin (ELM). Earlier, 50 per cent of the membership card value could be used by brokers for this purpose.

From tomorrow, brokers have to cough up cash instead as this facility is withdrawn consequent to BSE's corporatisation.

The market breadth turned negative with the advance-decline ratio at 1: 6.

While 355 shares advanced, 2066 stocks ended lower in Tuesday's trading. Among the 30 stocks which constitute the BSE Sensex, only two ended positive. The volumes, too, were moderate with a total turnover of Rs 8587 crore in the cash segment of the top two bourses.

The slowdown in FII inflows had already dampened the bullish sentiment over the past few days, though purchases by mutual funds had provided some support.

The FIIs were net buyers of a mere Rs 9.4 crore worth equity in yesterday's trading while the mutual funds were net buyers to the tune of Rs 71 crore.

Marketmen said the fund flows would prove to be the key factor in deciding the course of the market in the run-up to the August expiry. Some dealers said the FIIs had turned sellers in the Nifty futures.

India has been the fourth biggest losers among Asian markets over the last one week.