Sensex crashes to 10-month low, recovers

Wednesday’s bounce back was propelled by stock-specific buying after the fall made many shares attractive. Further, concessions announced by the Finance Minister for venture capital funds and employee stock options also boosted the market morale. Analysts said a government proposal on Wednesday to give a 10-year tax holiday to pharmaceutical and biotech firms for research and development would boost the sector.

Technology shares which were the worst hit in the slide — and also contributed to the bellwether index’s slump — were among those fancied.Infosys Technologies closed 2.18 per cent down at Rs 7,700, off an intraday low of Rs 7,011.10. State-run oil refiners Hindustan Petroleum Corp and Bharat Petroleum Corp (BPCL) bucked the trend on bargain hunting. HPCL rose 7.33 per cent to Rs 110.50 and BPCL 8.8 per cent to Rs 163.70.

Losses suffered by speculators due to the market slump over the past two months have piled pressure on liquidity conditions and may stall a quick recovery, dealers said. "People are confused," said Arun Kejriwal, head dealer at Nikko Stock Broker. "They have burnt their fingers after being long for couple of months… they have gone short and lost again."

Analysts said investors were shying away because their losses have made them wary. "What has changed fundamentally has been a severe dent to investor psyche and cash positions," said an analyst, adding, "The positive divergence is on the verge of being nullified. Only if the rebound takes the index past 4,800 can one say the market has bottomed out. On the downside, it may fall to 3,880."

Meanwhile, worried over the extreme volatility in the markets, leading stock brokers pointed out mutual funds and local domestic institutional investors for dampening the market sentiment. They said that the mutual funds and banks reportedly pressing sales in several counters while the domestic institutional investors also indulged in selling at key counters resulting into considerable erosion in share prices.

The major losers were Wipro, Mastek, NIIT, VSNL, Global Tele, Gramophone, DSQ Software, Infotech Ent, Aptech, Pentamedia. VSNL, Gramophone and Hinduja Finance hit the downward circuit filters by registering maximum 12 per cent losses over their previous close. In the specified group, Sun Pharma and Digital Equipment were locked in the upper end of the circuit filter at the close. Of the total 140 scrips, 74 shares scored impressive gains while 64 registered losses and two held steady.