The stock markets crumbled with the expected tightening of monetary policy in China, especially credit to its real estate sector, and worries over Ireland's debt woes.
The 30-share Bombay Stock Exchange (BSE) index declined by 444.55 points or 2.19 per cent to 19865.14, its lowest close since September 23. The benchmark index was up by 13.7 percent so far in 2010. A broader 50-share NSE Nifty lost 132.90 points or 2.17 per cent at 5988.70.
While it is difficult to assign precise reasons to the fall, we opine that, weak overseas markets have likely resulted in this sharp fall in Indian markets, said Dipen Shah, Senior Vice President (PCG Research), Kotak Securities. According to him Global markets have turned weak on the back of concerns of monetary tightening in China and further weakness in some of the European economies.
However, domestic issues were also weighed heavily on Indian market participants. Apart from the change in telecom portfolio which was viewed as an indication of political instability as far the market is concerned, CWG scam, 2G Spectrum scam, Adarsh Housing scam and LIC's loss of Rs. 14,000 crore as reported on Tuesday, really scooped Indian markets. The fear is that what happens if LIC comes for selling as the Big daddy has always been supporting markets whenever FIIs were sellers?
The market was in an overbought state and bears have not shown any inclination to roll short positions and fearing huge carry rates in the absence of proper mechanism. Bulls decided to unwind long positions ahead of holiday on Wednesday. Week end will decide how bulls and bears decide their strategy of roll over of Rs. 160,000 crore in derivatives, said Mr. Ostwal. There is no physical settlement and the fear is that the carry cost could be as high as what we had seen on October 28 last month which has made market participants uncomfortable.
All BSE sectoral indices ended in the negative territory led by realty 3.55 per cent and metal 3.11 per cent.
Metal counters were the worst hit, with copper producer Sterlite Industries plunging the most among the Sensex scrips. The counter shed 5.4 per cent to close at Rs. 172.60 while the aluminium producer Hindalco declined by 5.21 per cent to Rs. 212.05 and the steel giant Jindal Steel 1.13 per cent to Rs. 672. Tata Steel also erased its last session's gains to settle with a loss of 1.91 per cent at Rs. 605.35.
Reliance Industries and the infrastructure giant Larsen & Toubro contributed the most to the overall Sensex loss. While Reliance plummeted by 2.24 per cent to Rs. 1,030.35, L&T tumbled by 2.53 per cent to Rs. 2,007.40 on BSE.
With 29 of the 30 Sensex components ending the day with sharp losses, the telecom giant Bharti Airtel was the only counter that emerged a winner in the falling market with a gain of 1.16 per cent to Rs. 313.10.