Sensex crashes, biggest single-day fall in 3 yrs; Re dips, sharp rise in bond yields.
The markets on Tuesday were spooked by overnight exit polls indicating that the ruling National Democratic Alliance government was facing a tough battle at the hustings. A massive selling wave engulfed the share market, especially in public sector undertaking and bank stocks, after the Bombay Stock Exchange Sensex closed 213.30 points (3.6 per cent) lower at 5,712.28, one of its biggest falls in a single day in the past three years.
The last time it tumbled so much in a day was on March 13, 2001. At one point, the Sensex was down 221 points to 5,704.28. The prospect of a hung Lok Sabha knocked Rs 55,010 crore (Rs 550.1 billion) off the market capitalisation on the BSE.
In a single trading day, the markets lost 4.21 per cent in capitalisation: from Rs 13,07,374 crore (Rs 13,073.74 billion) on Friday April 23 to Rs 12,52,364 crore (Rs 12,523.64 billion) on Tuesday, the biggest single-day drop in market capitalisation since January 21. On that day, the markets lost Rs 64,000 crore in capitalisation.
Technically, dealers said the market had become weak because the support level of 5,750 had been breached and the next support level was only at 5,550. Some six or seven hedge funds were major sellers on Tuesday but UTI Mutual Fund and LIC were net buyers at the fag end of the trading session.
The three gainers in the Sensex basket were Cipla, which closed 3.27 per cent higher at Rs 1,344.40, HDFC Bank (up 0.74 per cent to Rs 381.45) and Ranbaxy Labs (which gained 0.48 per cent to Rs 1,058.20). The breadth of the market was extremely negative, with losers outpacing gainers almost 5:1 on the BSE.
PSU and banking scrips spearheaded the fall in prices because an unstable majority at the Centre will mean that reforms in these two key areas will be stalled. Reforms such as privatisation have been a big attraction for foreign funds.
The price of the RCF stock fell 9.5 per cent to Rs 46.50, that of Shipping Corporation of India fell 9 per cent to Rs 132.70. The BPCL share's price fell 7 per cent to Rs 470.90, HPCL lost 6.7 per cent to Rs 477.35 and Indian Oil shed 4.5 per cent to Rs 539.40.
Among bank stocks, the State Bank of India scrip lost 4.17 per cent to Rs 630.10 and ICICI Bank scrip lost 2.22 per cent to Rs 312.05. As a result, the BSE PSU index fell 4.98 per cent to 4115.73 points and the Bankex was down 3.82 per cent over its previous close.
The consumer durables sector index fell 3.98 per cent. Says a dealer at a local brokerage: "Exit poll indicate the ruling government is struggling to get a clear mandate from the elections, and this was taken negatively by the market, leading to the fall."
Rushabh Seth, head, equity funds, Kotak Mutual Fund, said, "The exit polls spread the fear of an unstable government and this fuelled the selling. There was selling across the board, including by FIIs. However mutual funds were seen to staying put, as were small investors."
In the F&O segment, turnover was Rs 15,208 crore (Rs 152.8 billion) with 453,000 contracts being traded. There was a roll-over of about 35 per cent to the May series in the Nifty futures.
Kashyap Pujara of Sushil Financial Consultants said, "Massive unwinding (of positions) was seen in the derivatives segment as the expiry of the near month April 2004 derivatives contracts this Thursday draws near. This also led to the fall."
Tata Steel was down 7.37 per cent to Rs 379.20, Tata Motors fell 7.27 per cent to Rs 480.55, L&T was down 7 per cent to Rs 579.50 and ACC was down 6.8 per cent to Rs 267. Hindalco was down 6.4 per cent to Rs 1,215, Tata Power was down 6 per cent to Rs 388 and Reliance Industries fell 4.9 per cent to Rs 539.
Hanu Bhatia, vice-president, Parag Parikh Securities, said: "The exit polls show that the TDP's position in the Andhra Pradesh is weak and the BJP may have to go for new allies. The TDP has been a quiet party." The prospect of uncertainty at the Centre had an impact on the foreign exchange and government bond markets too.
The rupee lost about 17 paise to close at 44.20/21 against the dollar from its Friday closing of 44.03/04. Bond prices fell across maturities, with the yield on the 10-year benchmark paper rising to 5.11 per cent from the Friday's 5.08 per cent. The rise in yields on longer maturity paper was sharper as the prices at the longer end crashed by over Re 1.
"Fear is the key. The foreign exchange market is nervous. We won't be surprised if the rupee weakens to 44.35 tomorrow," said a dealer at a new private bank. Bond dealers felt the government securities market staged a knee-jerk reaction to the exit poll results.
Month-end dollar demand added to the nervousness and importers were seen rushing for cover. In the stock market, MTNL was the biggest loser in the Sensex basket, down 8.22 per cent to Rs 148.55. Twenty-seven of the 30 Sensex scrips closed with losses.
