India’s Sensex down 322 points on dismal global cues


Mumbai : Indian equities markets ended deep in the red once again Thursday, with a key index dipping by more than 322 points to finish below the 8,500 mark on very dismal global cues.

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“The minutes of the US Federal Open Market Committee (FOMC) released Wednesday reveal a very negative outlook,” Jagannadham Thunuguntla, head of the capital markets arm of India’s fourth largest share brokerage firm, the SMC Group told IANS.

They reveal that the members of the key policy making committee of the US central bank, the Federal Reserve Bank think that the US economy will end the current calendar year with a growth of 0 to 0.2 percent down from the earlier expectation of 1.5 percent, he said.

Similarly, the FOMC members think that there will be negative growth of 1 to 2.2 percent in the next calendar year. This means the current recession is likely to be a long drawn one, and the market is naturally very nervous, he said.

As a result, the 30-share benchmark sensitive index (Sensex) of the Bombay Stock Exchange (BSE) closed at 8,451.01, down 322.77 points or 3.68 percent from its previous close at 8,773.78 points.

The Sensex opened very weak at 8,400.88, down 372.9 points or 4.25 percent from its previous close Wednesday and hit an intra-day low of 8,316.39 before recovering a little to its final closing value.

The broader-based 50 share S&P CNX Nifty of the National Stock Exchange (NSE) also showed a similar trend and finished at 2553.15, down 81.85 points or 3.11 percent from its previous close Wednesday at 2635.00 points.

The BSE midcap index closed at 2,895.79, down 102.60 points or 3.42 percent from its previous close at 2,998.39 points.

The BSE smallcap index finished at 3,385.34, down 107.78 pints or 3.09 percent from its previous close at 3,493.12 points.

All 13 sectoral indices ended with losses and realty, consumer durables, oil and gas and bank stocks were the biggest losers.

Only five of the 30 stocks that make up the Sensex ended in positive territory. The biggest gainers were ACC Ltd., up 1.58 percent followed by NTPC Ltd., up 1.54 percent, State Bank of India, up 1.21 percent and Ranbaxy Laboratories Ltd, up 0.79 percent.

The biggest losers were DLF Ltd, down 8.56 percent, Reliance Communications Ltd., down 8.32 percent, Sterlite Industries, down 7.96 percent and ICICI Bank, down 7.87 percent.

As many as 1,899 stock or 74.15 percent declined, 594 stocks or 23.19 percent advanced and 68 stocks or 2.66 percent remained unchanged.

Overnight, the key index of the New York Stock Exchange fell 6.59 percent to a five and a half year low and the Nasdaq index too fell 6.53 percent.

Asian markets too finished in the red Thursday morning with the Nikkei, the key index of the Tokyo Stock Exchange falling 6.89 percent to go below the psychologically important 8,000 mark.

The Hang Seng, the key index of the Hong Kong Stock Exchange also finished with a fall of 4.04 percent.

With fears of a global recession now confirmed and economic news coming out of the US, the world’s largest economy, continuing to be gloomy, sentiment is extremely negative, analysts said.

“There is still no clarity on the General Motors and Ford issues because if they become bankrupt as many as 1 million jobs will go,” Thunuguntla said.

“That will put enormous pressure on the US government because of social security payments and that in turn will hit the economy further,” he added.

Citi Bank too is heading for a major crisis as its share price has fallen 30 percent in the last few weeks to come down to just $6, he said.

“Even for a Warren Buffet company such as Berkshire Hathaway, the credit default swap (CDS) premium has gone up from 1 percent to as much as 4.75 percent,” Thunuguntla said.

That means earlier if some one wanted to lend Berkshire $100 million and wanted an insurance against any default in repayment, the premium that had to be paid was $1 million. Now the premium that has to be paid is $4.75 million.

“Effectively, this is equivalent to downgrading Berkshire’s credit rating to Standard & Poor’s BAA rating from the AAA rating that Berkshire is still enjoying,” he said.

“Although Bershire’s credit rating has still not been downgraded, a CDS premium of 4.75 percent is usually charged for loans given to those having a BAA rating which is just one notch above the non-investment grade,” Thunuguntla explained.

Even Berkshire’s share prices have fallen nearly 45 percent to $84,000 from a peak of $1,51,650 about 12 months back, he said.

So, there is nothing to back positive sentiments, he said summing up the doom and gloom outlook now prevailing in the investor community.

That is also the reason why all attempts by the market to bounce back is being thwarted by more selling at the higher levels so that the chances of a recovery of any sort is bleak, analysts said.

Also the continuous and indiscriminate selling by foreign institutional investors has pulled down the rupee to historic lows against the dollar.

From Nov 1 till date the FIIs have been net sellers to the tune of as much as Rs.30.2 billion.

The Indian central bank, Reserve Bank of India’s (RBI) reference rate was Rs.50.52 for the dollar Thursday which is the lowest ever that the rupee has touched.

The RBI reference rate is based on 12 noon rates of a few select banks in Mumbai.