Volatile Sensex crashes below 10,000

Dalal Street plunged below the 10,000 level on Tuesday on worries foreign fund outflows may gather pace after US Federal Reserve Chairman Ben Bernanke8217;s hawkish comments...

Dalal Street plunged below the 10,000 level on Tuesday on worries foreign fund outflows may gather pace after US Federal Reserve Chairman Ben Bernanke8217;s hawkish comments on inflation pointed to higher US interest rates.

The BSE Sensex was in the grips of severe volatility before plunging 256 points to close below the psychological figure. So high was the volatility that the benchmark index convalesced in mid-afternoon trade after two intra-day falls of over 300 points, first in early-morning trade and later in early-afternoon.

A sell-off in the last 45 minutes or so of trade brought the Sensex to rest in four figure territory, losing 2.5, to settle at 9,957.32. The fall materialised as a result of weak global markets as Fed chairman Ben Bernanke warned of inflation in a speech addressing bankers. It revived worries of further hikes in interest rates in the world largest economy, despite it showing evidence of a slowdown.

The market remained in the red throughout the trading session. Between 12:55 pm and 3.30 pm, the Sensex fluctuated a huge 564 points. Select banks, auto shares, IT stocks and metal shares had triggered a strong rebound on the bourses in mid-afternoon trade. But later metal shares witnessed a total reversal. FMCG stocks weakened.

The Sensex settled below the 10,000 level for the first time since February 17, 2006. The S038;P CNX Nifty lost 79.35 points 2.6, to settle at 2,937.30.

Other global markets also dropped after Ben Bernanke revived investor concerns that interest rates will keep rising in the world8217;s biggest economy. London8217;s FTSE 100 index was down 1.1. Key benchmark indices in Hong Kong, Japan, Singapore, Indonesia, Malaysia and Australia were down between 0.27-2.3.

8216;8216;With the cost of funds set to rise, people would be more careful about valuations. The impact of rising interest rates would be more pronounced in emerging markets like India,8217;8217; Jaideep Goswami, vice president at HDFC Securities, said. 8216;8216;There is already a liquidity crunch and it will only get worse with cost of money set to go up.8217;8217;

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Foreign portfolio investors could pull more money out of markets like India, where share valuations are at more than 18 times their forecast earnings. After dumping shares worth about 2.7 billion over 16 sessions to Thursday, foreign funds had turned buyers on Friday scooping up 142.5 million. Provisional data from the National Stock Exchange showed foreign funds had bought shares worth about 115 million on Monday.

Weak performances other Asian markets weighed on Indian stocks, analysts said. 8216;8216;The focus is the US, and investors cannot be confident about its economy,8217;8217; said Kazuhiro Takahashi, general manager of the equity planning at Daiwa Securities SMBC Co Ltd.

Sending jitters in stock markets across the globe, Bernanke on Monday said the Fed needs to be vigilant, making sure inflation stays under control even as the US economy starts to shift to a slower pace of growth. US stocks plummeted on Monday as investors worried that Bernanke8217;s tough talk could mean more interest rate hikes, driving the Dow Jones industrial average to its lowest close in three months.

8216;8216;If the US continues to tighten its credit grip, there is a possibility that the US economy would have a hard landing,8217;8217; he added.