Mumbai: The Bombay Stock Exchange’s (BSE) benchmark index suffered its second biggest single-day drop ever on Monday, the first day of trading after the 2008 Union Budget was presented, as plans for the country’s largest farm loan write-down added to deepening fears of a recession in the US. While the sell-off on negative global market cues was expected, the massive loan write-off by state-run banks, announced in the Budget, increased bearishness.
Market blues: Traders at a brokerage firm in Mumbai on Monday, when FIIs were net sellers of Rs711 crore.
The potential losses faced by public sector banks added to the selling pressure,” said Satish Ramanathan, who helps manage $3 billion worth Indian stocks as head of equities at Sundaram BNP Paribas Asset Management Co. Ltd.
The 30-stock benchmark index, Sensex, lost more than 900 points or 5.12% to close at 16,677.88, as all key Asian markets suffered heavy selling after key US equity indices, Dow Jones Industrial Average and S&P 500, lost more than 2.5% each on Friday’s trade. The National Stock Exchange’s (NSE) broader 50-stock Nifty index lost 270.50 points or 5.18% to hit 4,953. The banking index was down 6.7%, making it the worst hit on BSE.
The Budget was presented during market hours on Friday, when the Sensex closed down 1.4%.
On Monday, the bank stocks “pushed down the sentimental scale,” said Ketan Karani, head of equity research at Kotak Securities Ltd, a domestic retail brokerage. The government has so far mentioned only about “providing liquidity support” to these banks which would be affected by loan write-offs. “Their destiny is unclear.” Banks, with a cumulative market capitalization of about $150 billion, account for 15% of the Indian market’s total capitalization. State-owned banks account for about half of the sector’s market cap.
State Bank of India (SBI), the country’s largest lender, lost 8.8%, while other public sector banks such as Union Bank of India, Punjab National Bank, Bank of India and Canara Bank, were down between 9.65% and 7.5%.
Jignesh Desai, head of institutional desk at SBI Capital Markets Ltd, the investment banking arm of SBI, said foreign institutional investors sold heavily on Monday.
The selling put pressure on the local currency as these investors convert their rupee exposure in equities into dollar after selling stocks. The rupee slid to a five-and-a-half month low. The rupee closed at 40.39/40 a dollar against its Friday’s close of 40.01/02.
Some brokers, who deal with foreign institutional investors (FIIs), claimed that a group of UK-based funds, including FII-registered funds floated by some Indian firms, were big sellers in the FII-pack. According to provisional data on the BSE website, FIIs were net sellers of Rs711 crore in the cash market on Monday, while domestic institutions bought Rs80 crore worth stocks.
It was a free fall in the market in the second-half of trading, said Desai. “There were no buyers. Domestic institutions — mutual funds and insurance funds — did not participate in late-trade,” he said.
“With FIIs continuing to sell and domestic investors down on sentiments, the market channels are dry,” Kotak’s Karani said. Investors need fresh trigger to rerecognize the growth potential of Indian stocks, which have lost significantly this year, he added.
Analysts expect the fall to continue and some some of them even predicted that the index would go down to 15,000 levels by the end of this month.
Jignesh Shah, head of equities at the wealth management division of ABN Amro Bank (India) NV, said global cues “had strong bearing on the Sensex fall than any domestic factor.” High net worth individuals (HNIs) “expect market to achieve stability in sometime,” he said. “HNIs are buying domestic themes.”
Anup Roy contributed to this story.