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Thursday, 24 November 2011

Sensex, Nifty crash to near 2-year lows amid foreign funds exodus

Indian markets crashed Wednesday as the benchmark indices broke major support levels plunging to near two-year lows. The Sensex and Nifty were the worst performers among all Asian indices, falling nearly 3 per cent.

A slowdown in economic growth in the US, which is the world's biggest economy, led to risk aversion across the globe. Weakness in Chinese manufacturing data further raised concerns of another global recession.

At 1304 hours, the Sensex was down nearly 450 points to 15,614 while the broader Nifty index declined 130 points to 4,682. The Nifty has fallen below the 4,700 mark for the first time in over 18 months. The Nifty last traded below 4,700 levels on 8 February, 2010.

Analysts said the selloff was driven by foreign institutional investors (FII), who fear a slowdown in the country's economy and a possible downgrade by major rating agencies soon.

"The underlying retail investors in the western world are pulling out money from the risk assets, whether in the emerging markets or developed markets... FII fund managers have to find cash for which they have to sell," Saurav Mukherjea of Ambit Capital said.

"The currency factor is clearly not helping. It has really hurt investor returns. What is causing the sellout is that they (FIIs) don't see any reason for the rupee to pullback to 45," he added. The rupee has fallen nearly 14 per cent in the last quarter alone. However, the currency was trading higher today, possibly on the back of intervention by the central bank.

Technical analysts anticipate further weakness because key levels have been broken. "4,720 was a strong support and once it was taken off the markets are witnessing a cascading effect. The Nifty can fall 200 points now as supply will overpower demand," Kiran Jadhav of Precision Technicals said.

The volatility has increased ahead of the derivatives expiry on Thursday. The National Stock Exchange (NSE) volatility index was up nearly 14 per cent. "Intraday you might get some scare but you might want to test it further," Independent analyst Sarvendra Srivsatava said.

Banking stocks saw the steepest cuts, falling over 3 per cent. HDFC Bank plunged 5 per cent. ICICI Bank was down 3.5 per cent.

Energy and IT stocks also slumped nearly 3 per cent. Most other sectoral indices were trading with over 2 per cent cut.

Barring Cipla, all other stocks were down on the Sensex. Jaiprakash Associates, Bharti, JSPL, BHEL and Reliance were trading with over 3.5 per cent cuts. RCom was the only stock trading higher on the 50-stock Nifty index. It rose after three officials of Reliance ADAG were granted bail by the Supreme Court earlier today.

The market breadth had collapsed with an overwhelming 90 per cent stocks falling on the broader BSE 500 points.

Among large cap stocks, government owned oil major ONGC, India's largest PSU bank SBI, private sector lender ICICI Bank and Axis Bank made new lows today.

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