India feels the tremors from global markets

A global selloff over Europe's sovereign debt problems and weak US economic data had a bruising effect on Indian stock markets today.

Led by metal companies such as Hindalco and Tata Steel, the benchmark indices touched three-month lows. Traders said foreign investors unwound their positions in futures and options, indicating there could be cash outflows and put further pressures on the spot market.

Selling by foreign institutional investors (FIIs) impacted the rupee, with the currency falling the most in the last few days. The rupee fell 1 per cent to close at 46.74, against 46.25 yesterday, according to Bloomberg data.

The weak Asian markets and overnight US market led to weak opening and as the day progressed, it fell further. The BSE benchmark index, Sensex, fell 434 points or 2.68 per cent to close at a three-month low of 15,790.93, its lowest close since November 3 and the second biggest one-day percentage fall since then.

The broader Nifty of the National Stock Exchange (NSE) lost 126.70 points or 2.61 per cent to end the day at 4,718.65. The negative sentiment was corroborated by the fact that more than 80 per cent of the stocks listed on BSE lost ground.

"The market was waiting to see correction and the global cues just triggered that. How the market behaves in the coming sessions will depend on the news flow from the global markets, as the next major event in the domestic market is the Union Budget," said Navneet Munot, Chief Investment Officer, SBI Mutual Fund.

Institutional dealers attributed the weak trend to dollar carry-trade unwinding by most of the hedge funds having exposure to India. "FIIs are selling because of several other factors, including the fear of further tightening by China and the unwinding of the dollar carry trade," said Vibhav Kapoor, Group Chief Investment Officer, IL&FS.

FIIs were net sellers to the tune of Rs 1,727 crore in today's trading, NSE provisional data said while the domestic institutional investors were net buyers of Rs 1,169 crore.

According to EPFR Global, that tracks foreign inflows, emerging market equity funds lost $1.6 billion in weekly withdrawals, the biggest outflows in 24 weeks. The report further added that investors pulled out almost $1 billion from global emerging market stock funds in the week ended February 3, the most in more than a year.

Technical analysts think the Nifty is at a very crucial level and if it breaks the 200-day moving average, which is considered an important indicator, a further fall is expected. According to Ambit Capital, the next support for Nifty is at the 200 DMA, which is at 4,640. .

Raamdeo Agrawal, director and co-founder of Motilal Oswal Financial Services, said the present fall in the markets could be termed a "mini-turmoil" and it has macro factors behind it. The strengthening dollar is leading investors, who had hedged against the dollar, to exit any non-dollar investment. The dollar-euro alignment was also giving a strong sense of the dollar getting stronger against all major currencies. This was happening in many markets across the globe and India did not have any particularly depressing reason to be worried about.

Some fund managers said a further fall will be a good opportunity to buy. "If the market falls further from current levels, it will make many stocks look attractive from a long term investment point of view" said Munot.

Energy major Reliance Industries, information technology giants such as Infosys Technology and banking stocks — all favourites with foreign funds--were among the main losers. Reliance fell 3.7 per cent to Rs 981.30, its lowest close in three months.

State Bank of India and ICICI Bank led the losses in banking stocks. ICICI dropped 3.7 per cent to Rs 798.35 and SBI shed 2.7 per cent to Rs 1,896.65. The sector index lost 3.04 per cent. Among tech stocks, Infosys fell 2.9 per cent to Rs 2,352.20, while Tata Consultancy gave away 2.2 per cent to Rs 726.05. Wipro slipped 2.1 per cent to Rs 640.90.

In the broader market, losers led advances in the ratio of 2.8 to 1 on moderate volume of 395 million shares.