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Future tense despite FM's balm

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Market players see more pain left as Sensex takes global cue & sinks below 17k on a volatile day.

Indian markets look set for a string of declines, despite pledges of action by policymakers led by Finance Minister Pranab Mukherjee. On the first day of trade following a downgrade of US debt by Standard & Poor’s, the broader sentiment remained grim in tune with other global markets.

The benchmark Sensex closed below 17,000 on Monday, the first time in over 15 months, as risk-averse foreign investors sold shares amid Standard & Poor’s warning earlier in the day that “a renewed slowdown, if it comes” can create a deeper and prolonged impact than the 2008 crisis on the fiscal capacities of countries such as India.

The 30-stock index, which opened nearly 400 points lower in the morning, recouped some of its losses to close down 1.82 per cent, or 315.69 points, at 16,990.18. Export-focused and contributed a third of the Sensex losses.

The 50-stock of the National Stock Exchange (NSE) fell 1.78 per cent, or 92.75 points, to 5,118.50. The index closed below 5,200 for the first time since June 2010.

The benchmark indices have lost nearly 10 per cent since the Reserve Bank of India raised its key rates on July 26, wiping off Rs 5,85,916 crore of investors’ wealth. In an indication the global equities decline was unlikely to abate soon, market indices in the US tumbled 3-4 per cent an hour and a half after trading.

The performance of Indian shares was relatively better than most export-focused Asian markets, which fell nearly 4 per cent. Asian markets sank, with Japan’s Nikkei closing at its lowest mark since mid-March and South Korea’s exchange halted traded briefly amid steep losses. It ultimately closed down 3.82 per cent.

Experts said the events showed there was still some pain left for the Indian markets. “There is probably some more downside till we test the key support levels on the major indices; 1,150 for the S&P 500 in the US and 4,777 on the Nifty in India,” said Arjuna Mahendran, the Singapore-based head of investment strategy for Asia at HSBC Private Bank. “Hedge fund redemptions and margin calls on leveraged investors will create a more ‘sell-into-strength’ sentiment for the rest of August.”

Foreign institutional investors (FII) sold Indian shares worth Rs 1,385.78 crore on Monday, provisional data on the BSE website showed. On the other hand, domestic institutional investors were buyers to the tune of Rs 1,320.38 crore.

Yields on the 10-year benchmark government bond traded between 8.21-8.28 per cent before closing at 8.26 per cent on Monday, lower than the close of 8.31 per cent on Friday.

Bond yields fell as a fall in crude oil prices softened the outlook on domestic inflation, weakening a case for further monetary tightening.

Precious metals were the major gainers on Monday, with gold crossing $1,700 an ounce while silver also rose. In Mumbai’s spot market, gold was traded above Rs 25,000 but settled at Rs 24,930 per 10 gram on closing, while silver closed above Rs 60,000 a kilo as investors looked towards precious metals to hedge their risks.

“Most of the pain in terms of S&P’s downgrade of the US credit rating is in the price now. One silver lining is the has started buying bonds of Italy and Spain. That gives some sort of hope the euro may stop falling,” said U R Bhat, managing director at Dalton Capital Advisors (India). “There is a good chance the Indian market may stabilise around these levels if there are no further negative global cues,” he added.

strategists on Monday upgraded their stance on Indian shares to a market weight (neutral) from underweight, which it had held for over a year, citing a turn in the macro cycle, lower oil prices, valuations and policy reform.

Earlier, major Asian markets lost 2-4 per cent as investors dumped shares. South Korea’s Kospi fell 3.82 per cent, Taiwan’s Taiex declined 3.82 per cent, China’s Shanghai Composite Index went down 3.79 per cent and Singapore’s Straits Times gave up 3.7 per cent.

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