Deteriorating conditions in the US financial system and the anticipation of further write-offs by US banks linked to the subprime crisis once again took a toll on markets across the globe on Monday. Indian markets were no different, with key indices taking one of their worst falls.
The 30-share Sensex of the BSE posted its second-steepest intra-day fall, losing 951.03 points, or 6.03%, to close below the psychological 15,000-level at 14,809.49 points, while the broader S&P CNX Nifty of the NSE posted its eighth-worst drop, plunging 242.70 points, or 5.11%, to end the day at 4,503.10 points.
Indian markets were the worst hit among Asian peers, with the banking sector continuing to reel. ICICI Bank stock plunged Rs 120.80, or 14%, to Rs 757.40?its biggest drop since September 17, 2001. Mortgage lender HDFC declined by Rs 276.95, or 11%, the most in almost eight years, to Rs 2,225.55. State Bank of India, fell by Rs 80.95, or 4.7%, to Rs 1,633.40, its lowest in about five months. The BSE Bankex fell 9.1%, its worst showing since May 17, 2004.
In an emergency measure, the US Federal Reserve on Sunday approved a cut in its lending rate to financial institutions by 25 bps to 3.25%, to help banks manage short-term loans. The rate cut, taken ahead of the Asian trading day, coincided with JPMorgan buying Bear Stearns for about 1/40th its share price a month ago. US markets had plunged on Friday with the Dow Jones Industrial Average slipping by 195 points to close below the 12,000-level at 11,951, points while the Nasdaq Composite plunged 2.26% to close at 2,212.49 points.
DD Sharma, senior vice-president of research at Anand Rathi Financial Service, said, ?The global meltdown and sell-off by troubled FIIs in domestic markets is playing havoc. Fear of more disturbing news from global markets is weighing heavy on traders? minds. Even long-term domestic players like insurance companies and MFs are steering clear of the market.?
Credit Suisse asked investors to stay underweight on India. ?Indian fundamental growth is linked to world events,?? analysts Nilesh Jasani and Arya Sen wrote in a note to clients. ?The links are less due to trade, which is well recognised, but they are quite strong due to funding gaps and commodity dependence.??
?People are scared because of the fear of the unknown,? said Sandeep Sabharwal, chief investment officer at Mumbai-based JM Financial Mutual Fund. ?At some point, people are going to start buying?but what exactly that level is, no one can predict.??
