Global sell-off pulls Sensex down

The Sensex has lost more than 28 per cent from a May 11 peak of 12,671.11, wiping out 209 billion in market capitalisation and surrendering all its gains in 2006. It is now down nearly 4 per cent this year.

Fears about higher interest rates, rising inflation and a slowing economy sent stocks sharply and broadly lower across the globe, with emerging markets taking the biggest hit. 8216;8216;I have no more words to describe what8217;s going on, and have run out of ideas on what to do,8217;8217; said a dealer. 8216;8216;It8217;s a complete washout, and it has set us back six to eight months.8217;8217;

At its peak, the Indian market was worth 745 billion, nearly equivalent to the country8217;s gross domestic product. 8216;8216;The buy side has completely disappeared 8230; we8217;re in for a lot of pain,8217;8217; said an institutional sales dealer. 8216;8216;It is going to be one long summer 8230; thank god for the World Cup.8217;8217;

Investors fretted about a weaker rupee, foreign fund sales and expectations the central bank would raise interest rates again in July, after a rise last week, to check inflation pressures and maintain rate differentials with the US.

Foreign funds, net buyers of 144 million in three sessions to Friday, have pulled about 2.4 billion from Indian stocks, cutting net investment this year to just over 2.5 billion.

According to analysts, the fall in equity markets across the world was mainly on concerns of higher interest rate costs, which are expected to curtail corporate profits. Asian markets boomeranged after a sell-off on Wall Street on concerns about another interest rate increase in the US. The Nikkei share average plunged 4.14 on Tuesday to book its biggest one-day percentage loss in two years. Hong Kong8217;s Hang Seng index tumbled 387 points 2.48, on 15,234.42.

But the damage was far worse in some other parts of the world. Trading at the Colombian stock exchange was briefly halted after its benchmark index fell more than 10 per cent. Mexico8217;s benchmark stock index fell 4.3 per cent, its biggest one-day decline in more than three years. Markets in Brazil and Hungary also tumbled.

In the US, the Standard 038; Poor8217;s 500-stock index fell 1.3 per cent, erasing all of its gains for the year and closing at its lowest level since November. The Nasdaq fell more than 2 per cent and the Dow Jones industrial average fell almost 1 per cent.

Emerging markets had enjoyed a strong surge in recent years because low interest-rate policies around the world pumped cheap money into the global economy, analysts said. 8216;8216;Global liquidity has helped drive a lot of these risky assets,8217;8217; said Larry Adam, chief investment strategist at Deutsche Bank Alex.Brown. 8216;8216;And now you are seeing this flight to quality,8217;8217; including cash and investments in developed countries, he said.

In India, Index heavyweight Reliance Industries fell nearly 5 per cent to Rs 858.75 while Tata Steel fell 8.5 per cent to Rs 390.45 on softer global prices. Housing Development Finance Corp fell 9.6 per cent to Rs 1, 017.45 and bellwether Infosys Technologies slipped nearly 5 per cent to 2,641.05.