Markets at 3-1/2-mth low as Europe rattles

Markets at 3-1/2-mth low as Europe rattles

Mumbai: Indian shares skidded 2.7% to their lowest close in three-and-a-half months on Tuesday as Europe’s sovereign debt woes sparked heightened fears of larger foreign fund outflows.

Financials and energy major Reliance Industries led the slide amid worries the problems in Europe may trigger a renewed crisis in the continent’s banking sector and delay a world recovery.

Although India’s economy is firmly on an upward trajectory, thanks to strong domestic demand, the weak global sentiment has doused investor appetite for risky assets and foreign funds have come under redemption pressure.

“Even though fundamentals are in our favour, liquidity and sentiment are currently acting against the market," said Sanjeev Patkar, director of research at Almondz Global.

The 30-share BSE index shed 2.71%, or 447.07 points, to 16,022.48, its lowest close since 10 February. Only one of its components managed to close in the green. The 50-share NSE index fell 2.8% to 4,806.75, its lowest close since Feb. 15.

The benchmark has lost 8.7% so far in May, weighed down by foreign fund withdrawals of around $1.8 billion as the deteriorating fiscal health in Europe rattled world markets.

The fall was almost in line with China’s Shanghai Composite Index that is down 8.6% but lower than Brazil’s Bovespa stock index which has shed 11.3% in May.

The BSE index has also fared better than MSCI’s measure of Asian markets other than Japan that has fallen 13.1% so far in May and MSCI’s emerging market index that has dropped 12.6%.

Foreigners are still net investors of around $4.8 billion in Indian equities in 2010.

“The market will stay rangebound until we have more clarity on developments in Europe," Patkar said.

World stock markets tumbled with pan-European FTSEurofirst 300 index of top shares down 3% by 3:47pm, while MSCI’s index of Asian shares other than Japan dropped 4.6%, hit by the euro zone worries and tensions in Korea.

Highly indebted Italy was the latest euro zone country due to announce a three-year austerity plan worth euro 24 billion later on Tuesday.

On the weekend, the central bank had taken over a small Spanish lender, leaving investors worried over what next was in store in the region.

Trouble started showing up in Europe weeks ago when a debt crisis begun in Greece.

Top lender State Bank of India dropped 3.9%, while rivals ICICI Bank and HDFC Bank closed down 2.7% and 1.1% respectively.

Standard Chartered, which is raising as much as $588 million through an issue of Indian depositary receipts, saw investors bidding for just 4.5% of the 204 million shares on offer by 4:00pm (1030 GMT) on the first day of sale.

Mukesh Ambani-led Reliance Industries, which has the highest weight on the Sensex, dropped 3.4% to Rs986.85.

Export-led software companies declined on concerns the deteriorating fiscal health of the euro zone will lead to reduced order flow from the region.

Top outsourcer Tata Consultancy Services shed 2.7%, while Infosys and Wipro lost 2.4% and 2.2% respectively.

In the broader market, losers outnumbered gainers in the ratio of 4.7:1 on a relatively low volume of 301 million shares.