Mumbai, Oct. 23: The sensex now marches to the heartbeat of the Dow.

The American and Indian indices have formed a unique cardiac rhythm, rising and falling as part of a gigantic Mexican wave that has rumbled through global markets over the past two months, ripping pockets and reputations.

The global financial turmoil, which has deepened in the past two months, has seen local investors scramble every morning to see how the Dow fared the previous day — an obligatory ritual in an uncertain world where paper-wealth parvenus are at risk of turning into paupers.

“Some of my retail clients are now keeping tabs on the Dow Jones Industrial Average on an almost daily basis,” said one broker on Dalal Street, where the Bombay Stock Exchange is located.

“If the Dow slides, we catch the chills,” said one bemused analyst who felt that the market was ignoring the strong talk and the pump-priming measures announced by the finance ministry and the RBI in recent weeks.

On Thursday, for instance, the sensex opened with a gap-down of 486 points from the previous close, choosing to ignore the positive signal sent by the RBI late on Wednesday when it permitted companies to bring in up to $500 million of their external commercial borrowings. Gap-down is the difference between the index’s previous close and the following day’s opening.

At any other time, the sensex might have been expected to open strong on such news. But in the troubled times, it has tended to take its cue from the Dow, which plunged 5.7 per cent on the previous night.

Today, the sensex tumbled below the 10000-level to close at an over two-year low at 9771.70, a fall of 398.20 points, or 3.92 per cent.

This is not the first time the index has set its face against positive local factors. On October 16, it plunged over 524 points at the opening bell even though the RBI had injected Rs 40,000 crore into the financial system by trimming a key reserve ratio for banks.

Broker circles blamed Thursday’s crash on weak overseas markets, which have been spooked by fears of a recession. These markets have also seen poor corporate earnings with job cuts adding to the gloom.

“The correlation between our market and theirs is the highest in times of euphoria and deep despair,” says Arun Kejriwal, director at KRIS. “It is lowest when things are normal.”

Others believe that the Dow-sensex correlation is natural since the biggest investors in the Indian markets are the financial institutional investors (FIIs), most of whom are already heavily invested in the US markets.

Gaurav Dua, head of research at Sharekhan, says the FIIs had invested over $17 billion in Indian stocks last year and have pulled out $11 billion after the crisis exacerbated this year.

P. Phani Sekhar, fund manager at Angel Broking, agreed that the Dow-sensex correlation — which is arguably closer than any other Asian regional index — has been triggered by huge FII sales this year. He reckoned they were forced to sell stocks and get into money because of the turmoil in the US.

Sekhar also blamed Indian companies for failing to acknowledge the troubles early. “They were all in denial till now about a slowdown. But while announcing their quarterly results, they have started talking about a possible slowdown,” he added.

An analyst with a foreign brokerage said the slump should also be seen in the context of a perceived global economic slowdown.

“Strong Indian companies will also be affected by the slowdown. The current share prices are reflecting this anxiety,” he added.