US crisis: Sensex tanks 445 points

MUMBAI; Global markets, including Indian indices, plunged on Thursday with investors pulling out amid suspense over the US government’s $700 billion bail-out plan and federal takeover of another American behemoth, the Washington Mutual.

While BSE Sensex fell by 445 points or 3.28% to close at 13,102, NSE Nifty tumbled by 125.30 points or 3.05% to close at 3,985.25 — a two-month low for both the indices.

The selling panic was triggered by lack of agreement among US lawmakers over the country’s biggest bailout package to buy distressed assets. And Federal regulators also seized Washington Mutual, the giant lender that came to symbolise the excesses of the mortgage boom, on Thursday night.

Sanjay Sinha, CEO, DBS Chola mutual fund, “It is a Pralaya. Rather than focusing on who will come out alive, our focus should be on building a strong boat for ourselves so that we can sail through this.”  

This is the worst close for the index since it dipped to 12,575 levels in July ahead of the trust vote. Experts feel those July lows could give way before things get better.
Dinesh Thakkar, CMD, Angel broking, says, “It appears we are on the verge of finding a solution to the problems in the US. There will be some pain when this process happens. We can even go below the lows we saw last week. But I don’t see the Sensex going to 10,000 levels.”

Falling inflation and softer crude prices are being seen as positives. But all these won’t give any comfort in the near future say analysts.

“I am expecting the inflation to come down to single digits by March next year. Any relief in interest rates is likely to come only after that. I don’t see any big upside in the markets till then. For an upside you need liquidity, I don’t see the FII flows starting any time in the next two quarters,” says Thakkar of Angel.

Large scale selling by FIIs and cautious approach by domestic institutions who are selective in their buying is making things worse for the market

Ajay Parmar, head of research at Emkay said, “It is a case of demand and supply. There have been a large number of sellers among the FIIs and nobody to balance it out. This has caused a considerable fall in the indices.”

However, some amount of this has been absorbed by Domestic Institutional Investors (DIIs) who are using the opportunity to buy into the market. “But DIIs are only purchasing select stocks through an averaging strategy,” Ajay Parmar said. That is why the markets haven’t seen them levelling out the sales of the FIIs.” In September alone, FIIs have sold over Rs7,800 crore. But MFs have bought only just over Rs1,992 crore.

Technically, the Nifty close below 4,000 is seen as significant. Alex Mathew Head, Research Centre Geojit Financial Services Limited said, “Nifty has closed below 4000 for short-term. If it closes consecutively two days below 4,000, then we can expect the market trading at 3,780 levels. The advance decline ratio is supporting a weak trend. A lot of stocks started trading below their respective 200 daily moving averagestheir respective yearly lows sending weak market undertones.”