Sensex crashes 113 points; market disappointed

Share prices on the BSE, NSE and exchanges in Delhi and Calcutta stock fell on sustained bull liquidation. On the NSE, trading opened on a buoyant note. However, pivotals could not maintan their opening levels. Nifty opened at1151.30, touched the day’s high of 1178.05 and closed at 1151.10 showing a net gain of 4.30 points.

The only sop for the market is that the RBI has allowed the banks to extend advances upto Rs 20 lakh in the case of dematerialised shares (through a depository). However, the advances against physical shares will remain at the Rs 10 lakh level.

“The market was expecting some action from the RBI on bank financing of badla (carry-forward transactions). This has not materialised,” said a dealer with the National Stock Exchange.

According to Jasvant C Parekh, president, BSE, overall the credit policy has presented various sops for the markets. “However, one cannot sideline the fact that too many expectations had been built on things which have not been included in the package. Moreover, the failure to initiate an immediate cut in the CRR, has left a perception that credit may become more expensive because of the current overruling fiscal deficit and the mounting government borrowing programmes,” hesaid.

Asit Mehta of Nucleus Securities said the first-ever monetary and credit policy announced by Bimal Jalan has not been up to market expectations. Market players were expecting an expansionary stance from the RBI. Regarding advances against shares and debentures to individuals, he said the proposal to increase the ceiling to Rs 20 lakh, augers well for the dematerialisation process of securities.

On the other hand, bankers and brokers said the RBI move to allow the FIIs to invest in treasury bills will add depth to the market as FIIs with huge corpus will use the arbitrage on the volatility in domestic short term interest rates. Analysts say that in the short term, FIIs would adopt a `wait and watch’ policy instead of rushing in to invest in treasury bills. According to FII officials, funds are brought in by them only at the time of taking delivery of shares from the stock exchanges.

An FII equity fund is allowed to invest upto 30 per cent of its corpus in debt instruments, which will now alsoinclude treasury bills. But most of them had been investing their full corpus in equities as the only other available debt option was the illiquid corporate debt. “For FII equity funds, the RBI measure will have a positive impact on their cash management.

There will be some interest in the 14-day treasury bills,” says S Subramaniam, Head of Research, UBS Securities. However, no large scale investment by FIIs in T-bills is expected because of the low interest rate here after taking into account the hedge cost.