Drought drags Sensex down to 6-month low

The sustained fall even forced some banks to offload securities pledged with them against loans (in cash or kind) which have been advanced. Some of the banks which were known to be heavy sellers were ABN Amro and Citibank. With the market falling day after day, many of the banks found themselves holding securities which were close to the value of the loans actually lent out. In such a scenario, the banks ask the pledgee to make good and add to the securities kitty. If the pledgee fails in contributing securities, banks usually resort to selling securities.

Technology shares were the hardest hit. And their fall was only aggravated by the relaxation of the lower circuit limit to 12 per cent. Top of the losers were Wipro at Rs 2,931, Sonata Software at Rs 748.10, Pentamedia Graphics at Rs 559.25, Digital India at Rs 530.65, Global Telesystems at Rs 1,047.25 and Rolta at Rs 332.65. Foreign funds, which were buyers till last week, also joined the selling-spree.

The BSE Sensex has lost nine per cent or 427 points in three straight sessions from last Wednesday’s close while the US Nasdaq composite index has gained over nine per cent, or 328 points, in the same period. The sentiment was extremely negative even for non-software stocks. Index-based counters like HLL, Reliance, SBI, ITC, Ranbaxy and Zee Telefilms came under strong selling pressure, and the impact was visible on Sensex. A section of the market also blamed the so-called infotech big bull for bringing down the market by resorting to selling pressure in IT and telecom counters.

Consumer goods companies and cement firms were hit on concerns that the would curtail demand in important rural Indian markets. Tuesday’s declines were led by index heavyweight Hindustan Lever which fell below a key support level of Rs 2,390 to end 8.5 per cent down at Rs 2,190. Cement, pharma shares and consumer goods companies faced day-long bull liquidation and bear hammering.

The BSE later said it relaxed the circuit filter limit to 12 per cent in 109 instances during the course of trading on Tuesday. The exchange relaxed additional 4 per cent circuit filter limit in 13 scrips in upward direction while the bourse witnessed transactions in two counters where the scrips hit maximum 12 per cent price bands (upper circuit). The exchange relaxed 4 per cent additional circuit filter limit in 96 scrips (downward) and the bourse witnessed transactions in 56 scrips when they hit maximum 12 per cent price band (lower circuit). “Relaxing the circuit-breaker limit has led to greater market volatility, unnerving investor confidence. Now we’re seeing a 12 per cent fall… earlier it was restricted to 8 per cent,” traders said.

Heavy speculative selling in technology stocks continued to hit the sentiment despite some analysts saying these stocks offered good bargains. Indian fund managers have been screaming from the rooftops that Indian tech shares, backed by fundamentals and earnings growth, are unlike many Nasdaq listed firms. But market participants feel sentiment will still be affected if the Nasdaq flounders.

Dealers said if the Nasdaq behaved, infotech stocks were likely to look up again, having been beaten down quite a bit. "Most of these firms have posted phenomenal results and their prices are now down to more realistic levels, so there is case for a rally here," said an analyst.