Markets sink as probe widens

Fears of a widening regulatory crackdown on price rigging in shares,dipping margins of banks and deepening probe into the telecom scandal sent the markets into a tailspin on Thursday with small-cap stocks getting battered in nervous selling. Even as foreign institutional investors FIIs continued their selling spree,the BSE Sensex fell 2.31 per cent,or 454.12 points,to 19,242.36. The 50-share NSE index ended down 2.3 per cent at 5,766.50. Small-cap stocks were hammered down mercilessly amidst reports that investigators and regulators are zeroing in on price manipulation in small and mid-cap stocks. The BSE small-cap index tanked by 5.92 per cent. Simultaneously,FIIs sold heavily,pulling out another Rs 1,296 crore on Thursday. With this,FIIs have sold stocks worth Rs 3,500 crore in the last four days. Meanwhile,the government said it will send notices to telecom firms by the end of this week as part of the investigation into sale of telecom licences and spectrum cheaply that allegedly resulted in a Rs 170,000 crore revenue loss for the government,adding to the investor woes. Shares in Reliance Communications fell 5.7 per cent Bharti Airtel declined 2.6 per cent.Said Amar Ambani,head of research,IIFL,Overall,the undertone is pretty weak amid the barrage of bad news hitting the market all of a sudden. Be it the various scams from 2G to UP foodgrains,concerns on bank8217;s profitability,sudden selling by the FIIs,the liquidity crunch,or the number of stories on stock price manipulation,nothing seems to be going in favour of the market. The rise in inflation and continuing liquidity crunch also added to the nervousness,analysts said. Investors dumped small-cap and mid-cap shares as media reports of possible price rigging in select stocks,coming close on the heels of a Sebi action last week against four firms on allegations of price manipulation,rattled investors.

The fall in small caps is due to adverse sentiments,huge uncertainty about what next and closure of margin by brokers to HNI high networth investors with forceful closing of positions in small-caps and mid-caps, said Kishor P Ostwal,CMD,CNI Research Limited.

India is the only major market hit by a selling wave. European shares hit a 26-month highs on Thursday on optimism the US tax cuts would boost consumption,with technology stocks boosted after ASML lifted its booking forecast. Key benchmark indices in France and UK rose by between 0.28 per cent to 0.58 per cent.

Asian markets mostly advanced on Thursday after the agreement in the US to extend tax breaks sent US shares moderately higher on Wednesday. Hong Kong,Indonesia,Japan,Singapore,South Korea and Taiwan rose by between 0.23 per cent to 1.70 per cent.

Bank shares remained under pressure on margin worries after banks started hiking deposit rates without a corresponding hike in lending rates. ICICI Bank shed 4.41 per cent to Rs 1,057.20. The stock has fallen 8 per cent in three trading sessions on fears of slowdown in credit offtake after it raised lending rates.

State Bank of India SBI dropped 4.3 per cent,HDFC Bank ended down 1.8 per cent and Housing Development Finance Corp fell 1.9 per cent. Brokerages said the margins of most banks were likely to be under pressure in this quarter to December 31 after they hiked deposit rates in the last three months.