Markets close down 0.7% on global weakness

Markets close down 0.7% on global weakness

Mumbai: Indian shares fell for the second day to end 0.7% lower on Wednesday, knocked down by world equities, as rising fears over global economic recovery triggered a flight to safety.

A one-notch downgrade of Ireland’s debt rating by Standard & Poor’s and an unexpected plunge in US existing home sales on Tuesday strengthened worries over the health of world economy.

The Indian central bank’s comments late Tuesday that it might have to give precedence to containing inflation over other policy objectives as rising prices were a major concern, weighed on financial stocks.

The Reserve Bank of India also said in its annual report that the country needs to be cautious while formulating policies in the current fiscal year due to the uncertain global environment though India’s growth outlook remained robust.

The 30-share BSE index closed 0.72% or 131.95 points lower at 18,179.64 points, with 23 of its components closing in the red. The 50-share NSE index declined 0.8% to 5,462.35 points.

“Market seems to be giving way. Valuations are expensive and global cues are not encouraging," said Arun Kejriwal, director of research firm KRIS.

“We just need to pray global markets are positive overnight. Or we may end up seeing a bloodbath on expiry here tomorrow," he said, referring to the expiry of monthly derivatives contract on the National Stock Exchange.

The index has still logged a gain of 4.1% year to date, outperforming its peers such as Brazil’s Bovespa, Russia’s RTS index and China’s Shanghai Composite Index which are down between 3.5% and 20.8%.

Foreign funds have pumped in $12.6 billion in Indian equities so far in 2010, adding to the record $17.5 billion in 2009 which had led to a rally of 81% in the benchmark index.

“Our (1-year forward) Sensex target stands at 19,500, a 6% upside which reflects that majority of this story is factored in," Macquarie said in a note released on Tuesday, referring to the recovery story post the global financial crisis.

“The next trigger in performance would revolve around sectors/stocks that are geared to the structural domestic story, are able to execute and maintain their earnings growth momentum."

Oil companies were in focus again tracking developments on the future of Cairn India ownership.

Explorer Cairn India erased some of Tuesday’s 3.2% gain after a senior oil ministry source told Reuters state-run energy firms Oil and Natural Gas Corp, GAIL India and Oil India will not counter UK miner Vedanta Resources’ bid for a stake in the firm.

Cairn India closed 2.8% lower, while ONGC firmed 0.4%.

Leading lender State Bank of India dropped 0.8% and private sector rivals ICICI Bank and HDFC Bank declined 1.7% and 0.6% respectively.

Mortgage lender Housing Development Finance Corp declined 0.9%.

A bearish outlook for metals in the near term pulled down metals producers. Aluminium maker Hindalco dropped nearly 3% while Tata Steel, the world’s seventh-largest steel producer, shed 3.2%.

Non-ferrous metals producer Sterlite Industries bucked the trend and climbed 1.1%.

Losers outpaced gainers in the ratio of 2.5:1 on a relatively lower volume of 412 million shares.

By 3:52pm, world equities measured by the MSCI All-Country World Index and Thomson Reuters global stock index shed 0.5% each.