Markets plunge on fears of liquidity squeeze

Written by Markets Bureau | Mumbai, Jun 23 | Updated: Jun 25 2008, 04:44am hrs
Extending losses of the previous week, key indices continued their downward journey on Monday for the fourth consecutive day amid speculation that the Reserve Bank of India (RBI) may tighten liquidity to spike the spiralling inflation.

Also, negative cues from global markets coupled with political uncertainty at the Centre played spoilsport, resulting in benchmark indices falling by almost 3% (intra-day) to recoup its early losses in the later half of the session on the back of some intra-day short-covering at lower levels.

The Bombay Stock Exchange (BSE) Sensex, after losing 400 points in intra-day trades, closed at 14,293.32 points, posting a loss of 277.97 points or 1.91% while the broader National Stock Exchange (NSE) Nifty slid 81.15 points or 1.87% to end at 4,266.40 points.

Anticipating a dent in profitability due to lack of inflows post the possible interest rate hike, investors turned their back on capital-intensive sectors such as capital goods, metal and power on Monday as these were the worst hit among sectoral indices.

The BSE CG index fell by more than 5% to end the day at 10,797 points while the BSE Metal lost 4.62% to end at 13,856 points. The BSE power lost 4% to close at 2,437 points.

Deven Choksey, MD, K R Choksey, said, "The selloffs on the Indian markets are over exaggerated. The inflation issue is only a short-term one and our regulators are taking adequate measures to tame it and it is very unlikely that inflation is going to spike any further. The long-term fundamentals of the economy are intact and investors should not take a short-term call on the markets."

Foreign institutional investors continued to book profits on the Indian bourses and on Monday they were net sellers to the tune of Rs 665 crore while domestic institutional investors continued to infuse money being net buyers at Rs 91.75 crore.

"The current conditions are mostly triggered by FII selloffs, though not necessarily at profits and they have a habit of making noise when they are putting in and pulling out money. They are reducing their stake in the markets as the currency is depreciating and with an improvement in conditions, they are likely to come back," added Choksey.

The overall markets breadth remained extremely bleak on the back of across-the-board selling by investors. On the BSE, only 425 stocks advanced as against decline by 2,222 and 50 remained unchanged.