Sensex loses 192 pts on Fed stance

Rs 58,500 cr market cap lost; World markets decline on US interest rate jitters.

A 99-point fall in the US Dow Industrials yesterday, spurred by renewed inflation concerns in the US and the possibility of the Federal Reserve hiking rates sharply had a cascading effect on Asian and European stock markets on Wednesday. With end-of-day losses at 2.89 per cent, the Bombay Stock Exchange Sensex was the biggest loser among Asian indices.

Brokers said the Indian stock market got its cue from the overnight US markets. The freshly released minutes of the December 14 meeting of the Federal Open Market Committee, the rate-setting body of the US Federal Reserve, played havoc with sentiment in India, which was already nervous at 6,600-plus levels.

Dealers said a couple of hedge funds were the first bulk sellers in the morning, which triggered the avalanche.

Amitabh Chakraborty, vice-president and head of research at Kotak Securities, said, "It is difficult to say what the trigger was "" it could be metals on the London Metals Exchange, or interest rate hike signals from the US "" but the truth is there was selling and profit-booking."

The Bombay Stock Exchange Sensex tumbled 4.75 per cent (316 points) to the day's low of 6,334.74 before recovering to close 2.89 per cent (192 points) lower at 6,458.84, with only one stock in the Sensex basket standing firm at the end of the day. The carnage wiped out Rs 58,500 crore in market capitalisation.

Foreign institutional investors and domestic institutions were said to be sellers at all levels. Wednesday's fall was the largest since Black Monday, May 17, 2004, and the third largest in the past year.

Selling was widespread, brokers reported, with mid-caps being impacted almost as bad as large caps. But they added that the Indian market was looking for a breather after having run up 416 points in the last nine trading days, albeit with small corrections on three days.

"I was feeling a bit uncomfortable with the way that the prices had risen. It had to cool down. This will provide some relief to the markets," said Raamdeo Agarwal, joint managing director, Motilal Oswal Securities.

The statements made by the US Federal Reserve and the movements of metals on the LME were just triggers for profit booking, he added.

Cement stocks managed to hold ground. The Gujarat Ambuja scrip was the only gainer in the 30-scrip Sensex basket, closing a marginal 0.02 per cent higher at Rs 425.95.

Hero Honda's dream run, associated with December sales numbers and expected quarterly numbers, was rudely stalled on Wednesday, and the scrip closed 7.39 per cent lower at Rs 566. Hero Honda was the biggest loser in the Sensex basket.

The Bharti Tele-Ventures scrip, which was going strong on renewed foreign institutional buying, got a disconnect call: it closed 6.95 per cent lower at Rs 210.20. Wipro lost 5.68 per cent to Rs 706.20, Satyam Computer lost 5.23 per cent to Rs 389.80, Cipla lost 5.19 per cent to Rs 301.15 and Hindustan Petroleum lost 5.18 per cent to Rs 392.25. That takes the count of Sensex scrips with losses exceeding 5 per cent to six.

The rupee fell sharply on Wednesday to close at 43.84 to the dollar, from 43.52 yesterday. Banks rushed to cover their positions as the greenback appreciated against other major currencies. The dollar rose from 1.33 per euro to 1.32.

"The correction was expected, but the pace of decline has probably been rather sharp," Motilal Oswal's Agarwal added. Dealing room sources added technical analysts had earlier put out cautionary notes at Sensex levels over 6,650.

A K Sridhar, chief investment officer of UTI Mutual Fund, said: "The correction was expected. The stocks where valuations were stretched have seen the most correction. Going forward, these corrections will be healthy as all the effervescence will go out of the market, which will create more space in the market to grow."

Among non-index stocks, in the A group, Castrol was the largest gainer, closing at Rs 224.90, up 3.19 per cent, followed by Dabur at 2.15 per cent (Rs 90.25). Cement scrip Birla Corp gained 1.72 per cent to Rs 159.90.

Elsewhere, the Swaraj Mazda scrip stood out, locked at the 20 per cent upper circuit level at Rs 378 and Saurashtra Chemicals gained 16.80 per cent.

Brokers said the US Federal Reserve's minutes seem to suggest that it may raise rates aggressively and fast to contain incipient inflationary pressures.

The broader S&P-500 index in the US hurtled to its sharpest drop in four months. Japan's Nikkei fell 0.70 per cent, the Hang Seng fell 2.20 per cent and the Taiwan Weighted shed 1.19 per cent.

What happened

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• Interest rate concerns, after notes of US Fed meeting suggested rates will be hiked sharply, knock sentiment
• Hedge fund selling in domestic markets
• Margin calls by brokers forced investors to make good losses by selling other scrips
• Lack of significant institutional buying support
• Investors cut huge outstanding positions in the derivatives markets, which impacted spot prices
• Genuine profit booking by investors, opting to cash recent gains