Sensex dips below 12k, rupee at a five-year low

The Sensex plunged to its lowest in more than two years, and the rupee declined to its lowest level in five years to 47.81 against the dollar, as the credit crisis deepened in Europe, reinforcing concerns about the pace of growth of the global economy. The Indian markets declined after Germany bailed out Hypo Real Estate Holding AG for $68 billion and the UK too said it would rescue its lenders.

The Sensex of the Bombay Stock Exchange (BSE) tumbled 724.62 points, or 5.8%, to 11,801.70, the lowest since September 12, 2006. The BSE 200 Index too declined 6.1% to 1,423.32.

The S&P CNX Nifty of the National Stock Exchange fell 5.7% to 3,602.35. Nifty futures for October delivery fell 5.2% to 3,640. According to provisional figures furnished by BSE, FIIs continued offloading stocks in the domestic markets. They were net sellers at Rs 1,169.33 crore, while domestic institutional investors were net buyers at Rs 661 crore.

Amitabh Chakraborty, president-equity, Religare Securities Ltd, said, “A lot of heavy selling kicked in the second half of the trading session as the news of Fortis getting bailed out by the UK govt came in and all European indices opened down by 6%.

Markets witnessed a lot of panic-selling in frontline stocks as well as in select mid-caps by the FIIs and selective HNIs whose positions were highly leveraged.”

And it was not just in India, stocks tumbled worldwide. In fact, emerging market stocks headed for their biggest one-day decline since 1997 as the global banking crisis escalated in Europe. The trigger in the European market was the news that BNP Paribas SA agreed to take control of Fortis after a government rescue failed, and German state and financial institutions put together a $68-billion rescue package for Hypo Real Estate Holding AG.

Oil falling below $90 a barrel for the first time in eight months also did not cheer the markets. The MSCI Emerging Markets Index slumped 6.9%, putting it on course for the biggest slide since the Asian markets meltdown of October 1997.

Russia’s stock market decline, along with China and Brazil, has pushed the benchmark MSCI emerging market gauge down 44% this year, the steepest drop in at least two decades. China’s benchmark CSI 300 Index slid 5.1%, its biggest one-day decline since August, after resuming trading on Monday after a week-long holiday.

Hitesh Agarwal, head-research, Angel Broking, said, “Indian stock markets are feeling the heat of the global liquidity crunch. The present decline is a fallout of the redemptions by foreign institutional investors (FIIs).”

The move by the Securities and Exchange Board of India (Sebi) to relax the norms pertaining to FII investments has come as a welcome relief for the Indian stock markets, Agarwal added.

The slump in share prices prompted overseas funds to reduce holdings, and pushed the rupee to the lowest level since February 2003. The Indian currency fell 1.5% to 47.81 against the dollar, the lowest close since February 14, 2003. The rupee, the second-biggest loser this year among the 10 most-actively traded Asian currencies excluding the yen, is headed for its first annual loss since 2001. The rupee also fell on speculation companies bought dollars to pay for cheaper crude oil. Crude oil fell below $90 a barrel in New York for the first time since February.

Sensex components took a massive beating with Reliance Industries Ltd dropping 6.8% to Rs 1,641.60. Tata Consultancy Services Ltd, the largest software developer in India, declined 5.9% to Rs 619, its lowest since July 2005. Sterlite Industries (India) Ltd, the nation’s biggest copper and zinc producer, dropped 15% to Rs 335.50, the lowest in more than two years.

All the stocks in the Sensex ended the day in red. Of the 2,677 stocks traded on BSE, only 281 stocks managed to advance, 2,369 stocks declined and 27 remained unchanged. All the sectors in the BSE sectoral indices ended the day in the negative terrain.

The move to remove restrictions on overseas derivative instruments and a 50-basis points cut in the cash reserve ratio of banks are expected to elicit a positive response on Tuesday. But the pressure for the indices to touch new lows is expected to remain for a while.