Stock indices wilted under the combined onslaught of institutional and speculative selling yesterday as investors were stung by Unit Trust of India's decision to pare its equity exposure in its flagship scheme, US-64.
The 30-scrip Bombay Stock Exchange sensex plunged 224.22 points, or 7.23 per cent, to close at 2,878.07, its steepest intra-day fall of 1998 and the third largest in its history. The S&P CNX Nifty too shed 64.20 points to close at 840.75, down 7.02 per cent.
A further decline in stock prices was contained due to the imposition of circuit filters. Trading in key pivotals like SBI, Reliance, Dr Reddy's Lab, Infosys Technology and Bhel remained suspended after their prices hit the lower end of the circuit filter.
Share prices slipped further in kerb deals. At 9:30 pm, Satyam was being traded at Rs 528, down Rs 6 from yesterday's close on the BSE, ITC at Rs 632 (down Rs 4), Reliance at Rs 107.5 (down Rs 2) and SBI at Rs 180 (down Rs 4.20).
Apart from the uncertainty at UTI's end, the weakness in global markets accentuated the slide as foreign institutional investors sold stocks worth Rs 136 crore on the BSE and NSE.
Yesterday's fall was largely triggered off by news reports that UTI will reduce its equity exposure in US-64 by nearly 4 per cent.
The sensex opened at 3,036, 66 points lower than its previous (last Wednesday's) close of 3,102, and plunged to 2,892 by 12:00 pm.
With FIIs pressing sales and UTI refraining from making purchases in a big way, there was total pandemonium as market players tried to grapple with the situation.
Trading was frozen at counters like Bajaj Auto, HPCL, BPCL, Grasim and Bhel. The HLL scrip too came under severe pressure on account of reported FII sales.
Even UTI chairman P S Subramanyam's statement to Reuters around 1:00 p m that UTI would seek to cut its equity exposure only in the medium-term, and that too by investing fresh funds in non-equity instruments, failed to calm the markets.
Brian Brown, managing director of W I Carr Securities, said the market reacted to more than one issue due to the longer weekend.
"The market witnessed all-round selling from domestic institutional investors and speculators. However, UTI was one of the many issues that hit the market. Due to the long weekend, the market did not have an opportunity to react to delays in waiver of the US sanctions and the Akali Dal's decision to review support to the government. UTI was a significant factor. We expect the government to make market-friendly announcements like buyback of shares to lift sentiment," Brown said.
Indian GDRs mirrored the nervousness witnessed at the domestic markets and declined sharply. The 65 Indian GDRs were down by an average 2.5-3 per cent by 7:30 pm yesterday.
"The overall mood is negative and will depend on the stand UTI takes in the coming days. The scenario for the GDR markets is unclear over the short term. Over the long term, however, one can see an upside," an analyst with a London-based brokerage said.
The MTNL GDR was being offered at $10.5, down 13.5 per cent, Bajaj Auto at $16.25 (down 10 per cent) and Reliance at $4.95 (down 8 per cent). DSP Merrill Lynch vice chairman Shitin Desai feels UTI may have to announce an orderly plan to declare the NAV of US-64.
"UTI has to assure the market in an orderly fashion that it is moving towards declaration of the net asset value of US-64. It is agreed that it needs to be done in a phased manner. However, it will put to rest the panic witnessed by the market," he said.
