Sensex falls below 13k

Markets continued to reel under persistent selling pressure on Tuesday, shaving nearly 500 points off the benchmark Sensex. The index fell below the 13-K level for the first time since April 5, 2007.

Investors dumped stocks on mounting concerns over high oil prices, rising inflation, high interest rates and political uncertainty.

Tracking extremely weak European markets, the 30-share Sensex closed the day at 12,961.68, a fall of 499.92 points, or 3.71 per cent.

Similarly, the 50-share S&P CNX Nifty of the National Stock Exchange also ended below the psychological 4,000 level at nearly a 15-month low of 3,896.75, netting a loss of 143.80 points, or 3.56 per cent.

Barring NTPC (up 1.02 per cent to Rs 153.2), all other index stocks were deep in the red. Realty stocks suffered the most damage yet again, with the BSE Realty Index closing at 4,215.93 points, down 327.54 points or 7.21 per cent.

As panic selling continued on Tuesday after leading banks hiked interest rates on home loans and other retail lending, realty and bank stocks took a battering and closed lower by 7.21 per cent and 5.62 per cent respectively. Interest rates were increased by leading banks by up to 0.75 per cent.

ICICI Bank, the second largest bank in the country, spiralled near a two-year low after raising the rate charged to its best borrowers. DLF, the nation's biggest developer, plunged to a level last seen 12 months ago.

The Sensex has gone back nearly three years in terms of its price-to-earnings (PE) ratio. At the current level, the 30-stock index is trading at a PE of 15.92, a level that it last saw on January 18, 2005. After Tuesday's fall, the Sensex has shed 4,638.44 points or 26.35 per cent from a recent high of 17,600.12 hit on May 2, 2008.

"The risk-reward ratio of the stock markets is quite favourable for investors. They have nothing to lose if people are taking a long view of over a year for their equity investments.

The sharp selling in small- and mid-cap stocks, even by retail investors, suggests that we may be witnessing the last leg of selling in the markets," said Amitabh Chakraborty, president (equity), Religare Securities.

Interestingly, July's first trading session saw foreign institutional investors (FIIs) turning into net buyers as they bought equities worth Rs 209.43 crore on Tuesday.