Iraq conflict rattles Street; FIIs sell shares

Benchmark indices fall 1%, led by declines in capital goods, metals

Benchmark indices fell by more than a per cent on Friday as risk-averse investors pulled out of stocks globally after the United States raised the offensive on Iraq. Indian markets followed cues from global markets, which were also down by about one per cent after US President Barack Obama authorised air strikes on militants in Iraq's Kurdish region.

The 30-share Sensex fell by 1.02 per cent, or 259 points, to close at 25,329. The NSE Nifty declined by 1.06 per cent, or 80 points, to close at 7,568. This is the third straight session of declines for the Indian markets, which have been falling for the past two weeks on global concerns.

"Everything has come at the same time. The global geopolitical headwinds and Rajan's (RBI governor) hawkish statement in the RBI policy review have made people nervous. This means that the market could fall by about 4-5 per cent from these levels," said Nirmal Rungta, director and head (private client group), CIMB Securities.

"There is a certain amount of normalisation of expectations that is creeping into the market as investors get realistic about the flows coming into emerging market equities. There will be some concerns on global liquidity when the US starts raising interest rates, after the QE3 stimulus concludes in October this year," said Dhananjay Sinha, co-head institutional research, Emkay Global Financial Services.

The RBI left key policy rates unchanged in its bi-monthly review held on Tuesday earlier this week but disappointed investors by not giving a timeline for future rate cuts. Besides the geopolitical concerns, the markets have also been worried about the possibility of an interest rate hike in the US much earlier than anticipated. Foreign institutional investors (FIIs), who have propped up Indian markets, have been booking profits. On Friday, FIIs were net-sellers of Indian equities by Rs 503.74 crore, bringing the two-week net-selling figure to Rs 568.41 crore. In the last two weeks FIIs have been net-sellers on four out of nine sessions.

Defensive stocks have held up even as investor nervousness remains high. Participants say the weakening rupee on account of global concerns has sent investors rushing to technology, FMCG, health care and other export-oriented sectors' stocks and reducing exposure to the industrial sector. On Friday, metal and mining and capital goods stocks fared the worst, with Sesa Sterlite losing about six per cent and Tata Steel, Tata Power, and BHEL declining more than three per cent each.

The highest gainer among Sensex stocks was Bharti Airtel, up two per cent, which raised over Rs 2,100 crore through an offer for sale concluded on Thursday. At the time of going to press, Brent crude was trading at $105 a barrel, up 0.1 per cent.