The Telegraph
Since 1st March, 1999
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Comeback after crash
Sensex trapped in volatility vortex

Mumbai, May 31: The markets were in a ferment today as the sensex was thrown into an abyss, tumbling 674 points, before ricocheting in the late hours to end with a loss of nearly 390 points.

“The domestic bourses are taking directions from the international markets and global investor sentiment which is being driven by expectations of further rise in US interest rates,” V.K. Sharma, head of research, Anagram Stockbroking, said. He said there was a technical reason for the tumble as well, since the sensex crossed the 10,735 support level in trading yesterday.

The sensex opened at 10679.49, down 107.14 points from yesterday’s close of 10786.63, taking cue from the global meltdown in equities and falling base metal prices. It was also the high for the day.

The afternoon trade saw the index going into a free fall, tanking as much as 674.67 points to 10111.96. However, it recovered in late trading to end the day with a fall of 388.02 points, or 3.6 per cent, at 10398.61. The Nifty lost 114.25 points, or 3.59 per cent, to close at 3071.05. The mood was no better in the currency market where sustained demand for dollars from FIIs exiting stocks affected the rupee, which hit a three-year low.

The data on the economy released today showed that the GDP grew at a faster-than-expected 9.3 per cent growth rate between January and March this year, queering the pitch for a further rise in interest rates.

Analysts said rising rates would induce domestic funds to shift to debt instruments.

Investors are also worried over rising sales by FIIs, which was $2.47 billion in 13 sessions till Monday, cutting net investment in stocks this year to $2.38 billion.

Foreign funds are exiting emerging markets, shaken by high valuations and volatile commodity prices and egged on by rising interest rates in Japan and the US.

Sharma said, “This meltdown is different from the one witnessed two weeks back. This time, the outstanding positions in the derivatives segment is much lower.” Mutual funds have less cash now and are in no position to shore up the market, he added.

The reactions of foreign institutions to the volatile trends have been mixed. While JP Morgan was bullish on the economy, it went underweight on stocks. Morgan Asia equity strategist Adrian Mowat pegged the fair valuation of the sensex at 11000 by the year-end. Last week, Nomura International (Hong Kong) turned Cassandra, pegging the fair value at 7000.

The market breadth was negative, though it recovered in the last session. With advance-to-decline ratio at 1:4, only 413 shares rose, while 2,005 fell with 41 remaining unchanged. Among sensex scrips, 27 fell and three increased. The total turnover on the BSE was Rs 3,521 crore against Rs 3,215 crore yesterday.

The turnover is also falling. “While sales are driven by large volumes, buying is much less. This shows that smart money is going out of the markets,” Sharma said.

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