Equities swing to global tune,lose nearly 3% in a day

According to provisional data by stock exchanges,FIIs sold $350 million of Indian equities even as domestic institutions bought shares worth $222.52 million on Thursday. Since the beginning of June,FIIs have sold a little over $760 million of Indian equities on the back of a weakening rupee and India’s weak macro-economic fundamentals.

Late on Wednesday,US Federal Reserve chairman Ben Bernanke unnerved the market with his comments on winding down the Fed’s asset purchase programme.

“The committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year,” Bernanke was quoted as saying during the news conference after the US Federal Open Market Committee ended its two-day meet. The Federal Reserve would bring the quantitative easing programme to a halt around mid-2014,if recovery in the US economy continues at its current pace,he said.

On Wednesday,major US indices dropped nearly 1.5%. The nervousness was seen in Asian markets on Thursday,with Asian indices such as the Nikkei,Shanghai Composite,Hang Seng,Kospi,Jakarta Composite, Taiex,FTSE Strait Times index,and Thailand Set Index ending down in the range of 1.5-3.5%.

Major European indices like the UK FTSE,French CAC,German DAX and Spanish IBEX,among others,were also trading down 2.5% at the time of going to print,Bloomberg data showed.

Back home,market breadth was weak,with 28 of the 30 Sensex companies ending in the red. Overall,1,647 stocks declined as against 654 that ended in the green. All sectoral indices ended in the red. Falling over 5%,the BSE Realty was the biggest loser on Thursday. Other sectoral losers included BSE Metal (-4.6%),Bank Nifty (-4%),BSE Power (-3.3%),BSE Oil & Gas (-3%),and BSE Capital Goods (-2.9%). Even technology stocks,which usually benefit from a weak rupee,were down more than 2%.

Derivatives analysts said the 50-share Nifty saw significant long unwinding of Nifty call and put options at higher strikes and a similar build-up of open interest at lower strikes,indicating fresh short selling in the 50-share gauge and a further downtrend in the market.

The Nifty 5600 call saw a 168% rise in open interest positions compared to the previous trading session. Similarly,the Nifty 5,700 and 5,800 call option saw a thumping increase of 218.50% and 52.12%,respectively,in open interest positions,stock exchange data showed.

Data also showed a drop of 13% to 19% in Nifty 5,900 to Nifty 6,200 call options. “This is unusual…On a day when the market is weak,the open interest positions increase around 20-30% and unwinding at higher strikes is in the range of 5-6%,” said a derivatives trader at a US-based brokerage.

Jindal Steel and Power (down nearly 10%) was the biggest loser on Thursday. Other losers included Tata Steel (-6.3%),Hindalco (6.2%),BHEL (-5%),Sterlite Industries (4.5%),HDFC Bank (-4.3%),Mahindra & Mahindra (-3.8%),Reliance Industries (-3.8%),and ICICI Bank (-3.8%).

Interestingly,a section of the Street feels that the market’s reaction was exaggerated and the fall should be seen as a buying opportunity. “As equity markets pullback in the wake of Ben Bernanke’s statement,it is worth reflecting on how irrational the current fears are…Be that as it may,if the Indian market pulls back we would see that as a buying opportunity (our year end Sensex target remains 23,000)… we reiterate our view that it makes sense to swing even more firmly towards cyclical stocks,” said Saurabh Mukherjea,CEO,institutional equities,Ambit Capital.