Market rally snaps on profit-booking, Greek uncertainty

Indian shares snapped a six-day rally on Monday, as uncertainty over talks between Greece and its private bondholders pulled down global markets and the poor order inflow of power equipment maker BHEL disappointed investors. Engineering, realty and power stocks saw the sharpest decline.

The Sensex tumbled 371 points, or 2.15 per cent, to close at 16,863. The 30-stock index had gained 782 points in the last six sessions on heavy buying from foreign investors. The broader index, S&P CNX Nifty, fell 117 points, or 2.26 per cent, to 5,087.

“Whether we like it or not, India is a high beta market. Any global event that triggers a risk-off kind of move will affect us,” said Suresh Mahadevan, MD and head of equities, UBS Securities (India).

Among the major sectoral indices, the BSE Capital Goods index suffered the most by losing 5.55 per cent, while the BSE Power index gave up 3.54 per cent. The BSE Realty index declined 3.10 per cent and the BSE Metal index fell 2.85 per cent.

Power equipment maker BHEL led the fall among benchmark stocks after it posted disappointing third-quarter results. The stock fell 10.41 per cent to close at Rs 245. Engineering major Larsen & Toubro was down 5.37 per cent at Rs 1,307. Among banking stocks, private lender ICICI Bank fell 4.07 per cent to Rs 851.95 and State Bank of India was down 2.54 per cent at Rs 1,990. Reliance Industries, the country's top private sector company, fell 2.71 per cent to Rs 795 ahead of its plan to buy back stocks.

"Nothing much has changed from December. The latest rally was primarily fuelled by the global liquidity situation," said Andrew Holland, CEO, Investment Advisory, Ambit Capital. "This is the problem with liquidity-driven rallies. As they are not fundamentally driven, anything can change their trajectory. This is what liquidity does; it creates a lot of volatility."

According to provisional figures, foreign institutional investors were net sellers to the tune of Rs 200 crore. Prior to that, they had bought shares worth Rs 10,437 crore so far this year.

Europe's broader equity gauge, the Stoxx Europe 600, fell 0.8 per cent in its biggest two-day slide since December 8, 2011. The index had rallied 18 per cent from its September 22, 2011 low as the US economy saw some recovery and speculation grew about the euro area containing its sovereign debt crisis. Among other benchmarks, the UK's FTSE 100 was down 0.84 per cent and Germany's DAX fell 0.76 per cent.

European leaders will gather for their first summit of 2012 in Brussels on Monday. "They will put the finishing touches on a German-led deficit-control treaty and endorse the statutes of a euro 500 billion-euro ($661 billion) rescue fund to be set up this year," global news agency Bloomberg said.

"Equities have done exceedingly well this month amid growing optimism about the health of the US economy. But, the euro region is not out of the woods yet. Greece is still struggling to secure more aid from international creditors to avert a default. Fitch Ratings has lowered the grades of Italy, Spain and three others. All eyes will be on Monday's EU leaders’ summit," said Amar Ambani, Head of Research at Mumbai-based broking firm IIFL.

Negotiations between Greece and private bondholders over the restructuring of 200 billion euros ($263 billion) of Greek debt, which made progress over the weekend, were not expected to conclude before an EU summit began, a Reuters report said.