India’s benchmark equity index, the Sensex, lost more than 1,115 points from its day’s high on Thursday even as all key Asian and European market indices made strong gains and extended their rally.
Analysts and fund managers have started seeing bottom in the market, although they admit that the directional cues for the index would continue to come from sentiments in the US markets. “Sensex could consolidate around these levels,” said Tridip Pathak, who manages $300 million (Rs1,182 crore) in India as chief investment officer of Lotus India Asset Management Co. Pvt. Ltd. “There was too much of froth in some sections of the market. The embedded valuation theory used to value the subsidiaries and potential cash flows was taking it too far.”
The Sensex lost more than 372 points, or 2.12%, before it closed at 17,221.74. On the National Stock Exchange, the broader 50-stock Nifty lost 3.27% to 5,033.45.
The weakness in the market was evident and 23 of the 30 Sensex stocks were in the red. If that was the fate of blue-chips, the small and medium firms had a worse run. The Bombay Stock Exchange’s mid-cap index lost 3.2% while the small-cap one fell near 4%.
Apart from the Indian indices, in the entire Asia-Pacific, the Hang Seng of Hong Kong was the only loser, shedding one-fifth of its record 10.7% gains recorded on Wednesday. Benchmark indices in Singapore, China and South Korea gained around 2% each, while Australia’s ASX200 vaulted 3.1% and Japan’s Nikkei 225 added 2%. European indices, too, staged a rally, backed by the US government’s plan to bailout bond insurers.
Christopher Turner, a managing director at ING Bank NV in London, said the volatility in global equity indices is set to continue. “Equity markets are re-assessing global growth risks,” he said.
Thursday’s fall in the second-half of the trading session, according to some local analysts, was on account of selling pressure from high net-worth individuals, who squared-off derivatives positions simply because they got a better deal compared to the situation two days ago. “The Nifty had fallen to as low as 4,500 two trading sessions ago, but these investors had held on to their positions by paying the required margins,” said Siddarth Bhamre, head of derivatives at Angel Broking Ltd. “With the Nifty having risen to as much as 5,350 in intra-day trade on Thursday, and given the uncertainty in the global markets, a number of investors are reversing long positions.”
Based on preliminary data, outstanding positions in the derivatives market fell because of the unwinding. According to the technical charts, the Nifty, which is currently at 5,033, could move between 4,800 and 5,500, said Vijay L. Bhambwani, chief executive of Mumbai-based brokerage Bhambwani Securities (P) Ltd.
Rashesh Shah, co-founder and CEO of listed domestic brokerage Edelweiss Capital Ltd, said at current valuations the stocks are attractive.
Mobis Philipose contributed to this story.