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Weekly Review: Markets tank on global recession worries
August, 06th 2011

Markets plunged 5% during the week, clocking the sharpest fall in the last 21 months roiled by global recession concerns.

It was a tumultuous week for the markets; the Nifty commenced the week on a soft note, but succumbed to heavy selling across the sectors in the latter half of the week owing meltdown in global indices on worries of economic downturn.

On Friday the index touched a low of 5,116, down 435 points from the weeks high. The S&P CNX Nifty slipped 127 points, to close at 5,204 and the Sensex plummeted 387 points, at 17,306. Both the indices were down 5% for the week, earlier in November 2009 the index had declined 5.4% in one week.

Going forward, the Indian markets may take cues from the latest developments in the United States.  On late Friday, S&P yanked United States AAA credit rating which was held in last 70 years to AA+, citing concerns of insufficient deficit reduction and rising debt burden. Economists said that S&Ps move would raise the borrowing costs of United States.

Earlier in the week, the US government approved the plan to reduce fiscal deficit by $2.1 trillion over ten years and raised the debt ceiling of $14.3 trillion limit, by up to 2.4 trillion in two tranches. This was way below $4 trillion in savings which the S&P had recommended.  According to the S&P, US debt to GDP ratio may reach 85% by 2021.

Among the world indices, Dow Jones Industrial Average and Nasdaq shaved off 8% during the week. In Asia Japans Nikkei Stock Average lost 5.4%, Taiwan's benchmark index declined 9.2% and South Korea;s Kospi Composite was off 8.9%.

Analysts are worried that there could more pain still left for the markets. Roubini Global Economics in a note to clients said, It is clear to us from Fridays market reaction that it has still not fully discounted the awful growth picture because if it did, the S&P would be a lot lower than it is trading.

Back in India, Elara Capital in a weekly note alerted investors for a further downside on the Nifty index to 5000-5100 levels, before opportunities emerging in the market. The brokerage added, last leg of downgrades will be led by financials, automobiles, metals and power companies due to increase in FY12 leverage estimates after RBI raised rates by 50 bps.

The top losers among the Sensex 30 stocks included Sterlite Industries, Reliance Communications and DLF, down 11.4%, 9.3% and 8.9%, respectively.

Among individual stocks, India's most valuable company in terms of market capitalization, Reliance Industries slipped 2.5% to Rs 791 after output from the KG-D6 fields fell 27% to around 47 million standard cubic meters per day in June.

Larsen & Tourbo touched a low of Rs 1,574, but recovered sharply from the days low and closed at Rs 1,647.

The broader markets ended the week in line with the weak performance on the Sensex. The mid-cap index was at 6,589, down 4.7%. The prominent losers include Gujarat NRE Coke, IVRCL and Jai Corp, down 20.6%, 19.3% and 15.5%, respectively.

The small-cap index shed 5.9% at 7,815. Global Capital Market & Infrastructure was the top loser, down 32%, follwed by B L Kashyap and Karma Industries, down 27% and 22%, each.

Among the sectoral indices, BSE Realty, a high beta index plunged 7.5% to 1,889. HDIL was the biggest loser among the pack at Rs 124, down 13% and was closely followed by Anant Raj Industries at Rs 71, also down 13%.

BSE Metal reeled under selling pressure anticipating a decrease in demand for metals, owing to the US debt crisis. The index ended the week at 13,062, down 6.81%. Sterlite Industries shed the most at Rs 142, down 11% and was followed by Jindal Saw and JSW Steel, down 10%, each.

BSE IT strongly reflected the strain in the markets as it shed 6.45% at 5,459. The IT sector finds its largest market in the US and worries of clients cutting down their spending caused panic selling in the sector. Prominent losers in the sector were, HCL Technology down 8.7% at Rs 445, TCS down 6.9% at Rs 1,057 and Infosys was down 6.4% at Rs 2,591.

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