BSE Sensex falls more than 500 points on Fed; flows key

By Abhishek Vishnoi

MUMBAI (Reuters) - The BSE Sensex fell more than 2 percent on Thursday, the most in a day in nearly 21 months as blue chips such as Reliance Industries slumped after the U.S. Federal Reserve signalled a tapering of its monetary stimulus, stoking fears of portfolio outflows.

Emerging markets, many of which have been primed by easy Fed money, saw some of the biggest selling as investors rushed to the exits. MSCI's benchmark index for emerging equities slumped by more than 3 percent.

The rupee hit an all-time low against the U.S. dollar, prompting Reserve Bank of India intervention and highlighting the country's dependence on foreign capital inflows to fund its current account deficit.

 

FIIs have been sellers in index futures for the past 13 out of 14 sessions, totalling 88.46 billion rupees. They have also sold cash shares for seven straight sessions, totalling 39.41 billion rupees as per exchange and regulatory data.

"The reaction to Fed is exaggerated, outflows may happen but with the rupee so cheap it may be time for new money to also come in," said Paras Adenwala, managing director and principal portfolio manager at Capital Portfolio Advisors.

Sentiment was also fragile after China's factory activity weakened to a nine-month low in June as demand faltered, a preliminary survey showed, heightening risks that a second quarter slowdown could be sharper than expected.

The BSE Sensex slumped 2.74 percent, or 526.41 points, to end at 18,719.29, to mark its lowest close since April 15.

The broader Nifty fell 2.86 percent, or 166.35 points, to end at 5,655.90. It earlier fell as much as 3.03 percent.

Blue chip stocks such as Reliance Industries Ltd fell 4.05 percent, while cigarette-maker ITC Ltd ended 2.18 percent lower.

Shares of large-cap private banks also fell as traders fear that the high foreign holding in these stocks makes them more vulnerable to a sell-off after the Fed decision.

ICICI Bank Ltd , with 37.94 percent FII holding, fell 3.7 percent, while HDFC Bank , where FIIs hold 34.07 percent of total shares, slumped 4.3 percent.

Traders worry that an end to the U.S. monetary stimulus could lead to portfolio outflows, pushing the rupee lower and, in turn, delaying any rate cuts from the central bank.

Among other interest-rate sensitive stocks, DLF Ltd slumped 7.2 percent, while Unitech Ltd dropped 5.4 percent.

Auto makers also fell, with Maruti Suzuki India Ltd down 1.2 percent and Mahindra and Mahindra Ltd ending 3.8 percent lower.

Sintex Industries Ltd's shares fell 7.3 percent after it was announced that the stock would be excluded from the National Stock Exchange's derivatives segment.

Among the gainers, Apollo Tyres Ltd rose 0.9 percent after declining 33.7 percent in five sessions as investors fretted over the debt it will take on to fund its $2.5-billion acquisition of U.S.-based Cooper Tire & Rubber Co .

(Editing by Prateek Chatterjee)