Sensex plunges 613 pts on lower GDP estimates

Dalal Street reacted sharply to reports of the country’s gross domestic product...

Dalal Street reacted sharply to reports of the country’s gross domestic product (GDP) growth moderating this fiscal, with the benchmark Sensex nosediving 613 points (3.38 per cent) to 17,526.93. The second plunge in as many days was further fomented by a host of factors — ranging from weak earnings reports from US corporate giants like Wal-Mart and Cisco to poor sentiment in the primary market.

Today’s fall unnerved investors as the Sensex had plunged 524 points (2.81 per cent) on Wednesday after Asian markets tumbled following another recessionary piece of US economic data that had sent Wall Street shares down nearly 3 per cent on Tuesday. With the latest fall, the Sensex has lost 3,680 points (17.35 per cent) from the record high it had hit on January 10, 2008, due to heavy selling by FIIs. Huge unwinding of positions in the futures & options segment was another key trigger for the fall.

According to market analysts, the latest selling wave occurred despite a boost in liquidity in the secondary markets as investors have started getting refund of excess application money in the heavily subscribed Rs 11,000 crore Reliance Power IPO. However, it is to be seen how much money from Reliance Power IPO refunds actually makes it to the secondary market in light of the immense volatility witnessed on the bourses last month. “The poor response to Indian IPOs and reports of Wockhardt withdrawing its IPO added to the nervousness of investors,” said BSE dealer Pawan Dharnidharka.

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According to reports, a warning from IT giant Cisco triggered fresh concern in European markets that a US economic slowdown may erode corporate profitability. Cues from European markets, which opened after Indian markets, too were negative. Most of the Asian markets were closed today.

Disappointing sales reports from Wal-Mart Stores Inc and a warning of slowing orders from technology bellwether Cisco Systems heightened the recession fears. A report showing a higher-than-expected number of people claiming first-time unemployment benefits last week and the Nasdaq composite index’s drop into bear market territory, too, increased investor unease.

“For retail investors, it makes perfect sense to wait for some more time before taking a fresh plunge. For the bulls on Dalal Street, there are few stocks available at a discount or which are attractively valued. On the whole, the sentiment is still weak owing to the near-term uncertainty,” said an analyst with India Infoline.

With the Sensex falling below the psychological 18,000 level, selling intensified in IT, oil & gas, metal, FMCG and realty stocks. All the sectoral indices on the BSE and NSE were in the red today. Index heavyweights Reliance Industries, ICICI Bank and Larsen & Toubro declined. Reliance Communications fell sharply in late trade.

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Reliance Industries fell nearly 5 per cent, its lowest close in more than two weeks, on heavy selling in the futures market and by foreign funds. Indian banks have no exposure to the US subprime mortgage crisis but ICICI Bank fell 4.1 per cent.

Why are the bears active?

•US recession fears mount as Wal-Mart, Cisco see earnings fall

•Global markets continue downward the spiral

•IPO market in doldrums due to poor investor response