Sensex sheds 404 pts on industrial blip

There was no respite for the markets yesterday as the Bombay Stock Exchange's 30-share sensitive index, Sensex, wiped off nearly 1,000 points in two days, triggering fears of margin calls in the next couple of days, similar to the May-June meltdown.

Sentiment was negative in other financial markets, with the rupee and government bonds also weakening.

The index fell 404.41 points, or 3.02 per cent, extending sharp losses as industrial output data disappointed investors already worried about tighter monetary policy.

Foreign funds pressed the sell button, causing a ripple across the market. The broader S&P CNX Nifty fell 132.6 points, or 3.44 per cent, to 3,716.90.

The stock indices, which were showing some resilience in morning trade, fell apart after the release of the industrial production figures.

"Sales by foreign institutional investors are clearly visible. The fall in the market for the last two days is likely to have a cascading effect as margin calls have already started," said Sashi Bhushan, head of equities, IL&FS Investsmart.

The impact of the fall was felt mostly in mid-cap and small-cap stocks with the BSE Mid-Cap Index falling 4.13 per cent, or 231.44 points, to 5,370.10, while the BSE Small-Cap Index shed 4.12 per cent, or 269.56 points, to 6,278.75. In fact, 323 stocks hit the lower circuit as panic selling was evident in these counters.

For the second day, all Sensex stocks ended in the red, while only one scrip managed to float above Monday's close among the BSE-100 stocks.

The biggest losers in the Sensex were Grasim Industries (down 7.33 per cent to Rs 2,506.30), ACC (down 6.16 per cent to Rs 972.35), Reliance Communications (down 6.11 per cent to Rs 403.45), Gujarat Ambuja (down 5.10 per cent to Rs 130.35) and State Bank of India (down 5.06 per cent to Rs 1,179.85).

Reliance Industries fell 2.4 per cent to Rs 1,208.05, its lowest since October 26. ICICI Bank extended Monday's fall to end 1.7 per cent lower at Rs 805.60.

"It seems the market may see another 400-500 point correction. Since futures are trading at discounts, we are likely to see delivery-based selling with buying in futures for arbitrage purposes. But delivery-based selling will create panic and more margin calls will result in a further fall," explained another analyst.

The turnover in the futures and options segment was high at Rs 45,384.87 crore, indicating a cut in long positions by traders and perhaps, creation of short positions.

Among the sectoral indices, the BSE PSU Index, which lost 4.39 per cent, was the biggest loser, followed by the Consumer Goods Index (4.14 per cent) and the Metal Index (3.90 per cent).

The BSE Bankex, which lost 6.43 per cent on Monday, shed another 3.23 per cent yesterday.