Sensex drops 4% in four days on loan scam, euro-zone debt woes

Weakness persisted on the bourses as the key benchmark indices extended losses for the fourth day in a row, with a bank loans bribery scandal and weak global stocks weighing on investor sentiment. The barometer index BSE Sensex and the 50-unit S&P CNX Nifty settled at 2-1/2 month lows. The Sensex shed 181.55 points or 0.94% to 19,136.61, off 281 points from the day's high and up 181.79 points from the day's low. World stocks fell as worries over sovereign-debt contagion in the euro zone continued to escalate.



The BSE Sensex has lost 820.98 points or 4.11% to 19,136.61 in four trading sessions from its close of 19957.59 on 22 November 2010.

The finance ministry has not suggested recalling of corporate loans under scanner in the financial bribery scam, the financial services secretary R. Gopalan said on Friday, 26 November 2010. The Sensex dived below the psychological 19,000 level in morning trade but soon regained that level. The Securities & Exchange Board of India (Sebi) is reportedly examining the possibility of insider trading in shares of at least nine companies. The Sebi has joined the Central Bureau of Investigation (CBI) to probe the possibility of insider trading in shares of these companies, named by the investigator as involved in the loan scandal, reports suggest.

The market breadth was extremely weak with stocks of a number of small and mid-cap shares falling sharply. Realty and construction shares slumped, extending recent steep losses. But, banking shares recovered from early lows with ICICI Bank and State Bank of India logging decent gains.

Intraday volatility was high. The market reversed direction soon after a firm start. Stocks tumbled in morning trade. The market recovered in choppy trade later as the Sensex and the Nifty came off two-month lows. The recovery gathered steam in early afternoon trade. The key benchmark indices once again slipped into the red after turning positive for a brief period in afternoon trade. The Sensex swung between gains and losses in mid-afternoon trade. The market weakened again in late trade.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, was up 4.39% at 22.58. The index had plunged 12.36% to 21.63 on Thursday, 25 November 2010. The index had risen 6.10% to 24.68 on Wednesday, 24 November 2010. The index had jumped 16.71% to 23.26 on Tuesday, 23 November 2010. India VIX is calculated based on the S&P CNX Nifty options prices. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

The Central Bureau of Investigation (CBI) has reportedly sent notices to 21 medium-to-large sized Indian companies regarding the ongoing probe into a financial bribery scandal. The cases are limited to individuals and unlikely to create a large fallout, a news agency report said citing an unnamed senior CBI official. The CBI is not currently considering widening its probe into bribery over loans to corporates, the report added.

Finance Minister Pranab Mukherjee on Thursday, 25 November 2010, asked all banks, financial institutions and insurance firms to look into their exposures to firms named by the Central Bureau of Investigation in a loans bribery scandal. A ministry statement quoted Pranab Mukherjee as calling on regulatory and other institutions to further improve safeguards.

Chiefs of some of the top rung public sector banks and financial institutions were arrested by the Central Bureau of Investigation (CBI) on Wednesday, 24 November 2010, for allegedly sanctioning loans in return for bribes. The CBI has arrested the Chief Executive Officer of LIC Housing Finance, Secretary (Investment), LIC based in Mumbai, a General Manager, Bank of India based in Mumbai, a director (Chartered Accountant) of Central Bank of India based in New Delhi, a DGM of Punjab National Bank base in New Delhi. The CBI also arrested Rajesh Sharma, chairman and managing director of Money Matters group, which is at the centre of the scandal.

The CBI said in a statement that it has busted a racket wherein a private financial services company, its CMD and other associates were allegedly bribing senior officials of public sector banks and financial institutions for facilitating large scale corporate loans. They were also gathering confidential business information from financial institutions, the CBI statement said.

Officers of top management and middle management of various public sector banks and financial institutions viz. Bank of India, Central Bank of India, Punjab National Bank, LIC and LIC Housing Finance were receiving illegal gratifications from the private financial services company who were acting as mediators and facilitators for corporate loans and other facilities from financial institutions, the CBI said. Searches were conducted at various locations in Mumbai, Delhi, Chennai, Jaipur, Kolkata and Jalandhar, which have resulted in seizure of incriminating documents, the CBI said in a statement.

"It is an insignificant amount ... it is individual personal greed, it is not systematic failure," R. Gopalan, secretary financial services, government of India, told a news channel late on Wednesday, 24 November 2010. Junior finance minister Namo Narain Meena on Thursday, 25 November 2010, said that the loans bribery scandal that has led to several arrests is not a widespread scam and will not hit markets or the banking sector.

Meanwhile, Life Insurance Corporation of India has reportedly sent to the finance ministry files relating to investments in close to 40 companies along with notings. The files were requisitioned by the government some days before the CBI arrested the secretary in charge of investment at the Corporation Naresh Kumar Chopra, a newspaper report said. The CBI, in its remand application, had alleged that Mr Chopra had received a bribe for passing on insider information with regard to LIC's investment in a host of companies that include, Adani, JP Hydro, JSW Power, DB Realty, Pantaloon. The bureau has alleged that Mr Chopra received 16 lakh paid by Rajesh Sharma, CMD of Money Matters, through his associates.

Foreign institutional investors (FIIs) sold shares worth a net Rs 532.20 crore on Thursday, 25 November 2010, as against an inflow of Rs 1775.50 crore on Wednesday, 24 November 2010.

Year-end profit taking may continue to weigh on the the domestic bourses in the near term. Funds based in US and Europe follow calendar year as their accounting year. The market has lost ground soon after hitting a record closing high early this month.

The initial public offer of state-run MOIL, the largest manganese ore producer in India, was subscribed 34% by 16:00 IST on the first day of the issue today, 26 November 2010.

Bank and mining shares pulled European markets lower on Friday, 26 November 2010, as markets took in fresh reports of blasts heard in Korea and as sovereign debt issues continued weigh on investors. The key benchmark indices in Germany, France and UK were down 0.88% to 1.59%.

Investors continued to worry about the possibility of contagion to Portugal and Spain following Ireland's decision to ask for aid from the European Union and the International Monetary Fund.

Adding to the sour mood were reports of artillery fire near the South Korean island of Yeonpyeong. Artillery blasts rang out near the South Korean island of Yeonpyeong Friday, according to reports, three days after a North Korean shellfire attack killed four there. North Korea's official news agency reportedly said further escalation will lead to open war.

Asian stocks fell in choppy trade on Friday, 26 November 2010, amid tensions on the Korean Peninsula. The key benchmark indices in South Korea, Singapore, Taiwan, Japan, Hong Kong, China and Indonesia were down 0.45% to 1.61%.

Trading in US index futures indicate that the Dow could fall 74 points at the opening bell on Friday, 26 November 2010. The US financial markets are open for only half a day on Friday, 26 November 2010.

Closer home, the food price index rose 10.15% and the fuel price index climbed 10.57% in the year to 13 November 2010, government data released on Thursday showed. In the prior week, annual food and fuel inflation stood at 10.30% and 10.57%, respectively. The primary articles price index was up 13.38% in the latest week compared with an annual rise of 13.30% a week earlier.

The BSE 30-share Sensex was down 181.55 points or 0.94% to 19,136.61, its lowest closing since 9 September 2010. The Sensex rose 99.45 points at the day's high of 19,417.61 in early trade. The index lost 363.34 points at the day's low of 18,954.82 in morning trade.

The S&P CNX Nifty was down 47.80 points or 0.82% at 5,751.95, its lowest closing since 9 September 2010. The Nifty hit a low of 5,690.35 in morning trade.

The BSE Small-Cap index lost 3.06% and the BSE Small-Cap index declined 4.49%. Both these indices underperformed the Sensex.

The market breadth, indicating the health of the market, was weak. On BSE, 2552 shares declined while 499 shares rose. A total of 57 shares remained unchanged.

All the 13 sectoral indices on the BSE edged lower. The BSE Realty index (down 4.68%), the BSE Consumer Durables index (down 3.90%), and the BSE Metal index (down 2.54%), underperformed the Sensex.

The BSE IT index (down 0.02%), Bankex (down 0.03%), and the BSE Healthcare index (down 0.39%), outperformed the Sensex.

Among 30-member Sensex pack, 24 declined while the rest gained. Cipla (up 1.58%), and Tata Power Company (up 0.55%), edged higher from the Sensex pack.

Reliance Infrastructure (down 7.25%), Bhel (down 2.28%), and Reliance Communications (down 5.84%), edged lower from the Sensex pack.

Index heavyweight Reliance Industries (RIL) fell 1.69% to Rs 963.70, off day's low of Rs 958.90 and high of Rs 990.50. RIL and NTPC may reportedly settle their five-year-old legal battle over a contract to supply natural gas from RIL's field in the Krishna-Godavari basin to the state-owned power utility.

The RIL-NTPC dispute dates back to 2005 when NTPC dragged RIL to the Bombay High Court, complaining that RIL was not honouring a contract to sell 12 million standard cubic metres a day (mmscmd) of gas to its Kawas and Gandhar expansion projects in Gujarat for 17 years at $2.34 per unit. Shares in NTPC fell 0.25%.

Realty stocks slumped for the third straight day on concerns more of these firms could be named in the probe. The fresh sanctions of loans may take a hit after the outbreak of the scam involving sanctioning of loans in return for bribes. Sale of property is largely driven by financed funds.

India's largest realty player by sales DLF lost 0.94%, extending three-day losses. Ackruti City (down 13.34%), HDIL (down 3.94%), Indiabulls Real Estate (down 12.05%), Orbit Corporation (down 13.21%), Unitech (down 4.60%), and DB Realty (down 10%), declined.

Frontline banking and financial stocks were mixed after a recent steep slide triggered by the outbreak of the loan scam. India's largest bank by net profit and branch network State Bank of India rose 1.16% to Rs 2859, off sharply from day's low of Rs 2795.10. The stock rose on bargain hunting after the stock corrected close to 7% in the preceding three trading sessions. India's largest private sector bank by net profit ICICI Bank rose 0.51%.

But, India's second largest private sector bank by net profit HDFC Bank shed 0.74%. India's largest mortgage financier by total income HDFC fell 2.23%.

Bank of India (BoI) rose 3.02% to Rs 433, off the day's low of Rs 388.35, after the state-run bank clarified it has a proper structure for sanctioning loans, which is duly observed and the asset quality continues to be good.

Metal stocks fell in a broad-based market sell-off. Sesa Goa (down 5.72%), Sterlite Industries (down 2.49%), National Aluminum Company (down 4.03%), Hindalco Industries (down 2.87%), and Tata Steel (down 0.92%), edged lower. But, Steel Authority of India rose 3.12%.

Jindal Steel and Power lost 2.01% on reports the environment ministry has told the company to provide a reason why it should not cancel a green nod for the firm's 6 million tonnes per year Orissa plant.

Construction shares were hammered brutally for the third day in a row on funding worries after the loan scam was unearthed on Wednesday 24 November 2010. India's largest dam builder by sales Jaiprakash Associates tumbled 8.09% to Rs 105.70 after media reports named the company in an alleged loan bribery scandal. It was the top loser from the Sensex pack. The company's executive chairman Manoj Gaur in a TV interview said the company has neither taken any loan for realty business nor it intends to take any.

Hindustan Construction Company slumped 19.49% on reports the environment ministry has asked Lavasa Corporation to halt building a new town outside Pune. After market hours on Thursday, 25 November 2010, HCC and Lavasa clarified to the stock exchanges that Money Matters Financial Services is associated with the group on a fee based arrangement, where the latter acts as an agent for selling the group's properties.

Nagarjuna Construction Company (down 3.07%), IVRCL Infrastructure (down 6.06%), Patel Engineering (down 1.59%), and Gammon India (down 5.01%), were among the other losers from the construction pack.

IRB Infrastructure Developers spurted 4.89% on bargain hunting after the stock corrected 17.49% in the preceding three sessions to Rs 203.55 on Thursday, 25 November 2010, from a recent high of Rs 246.70 on 22 November 2010.

India's largest tractor maker by sales Mahindra & Mahindra dropped 3.23%. The company has agreed to acquire up to 5.5% stake in Tech Mahindra from BT over time through an inter-se transfer of shares. Shares of Tech Mahindra fell 1.36%.

India's largest truck maker by sales Tata Motors lost 3.75%. The company reportedly plans to set up a second factory in Bangladesh, one of its main export destinations for commercial vehicles, in six months to cater to growing sales of small and light commercial vehicles. Separately, Tata Motors reportedly plans to launch compressed natural gas (CNG)-powered trucks in the medium and heavy segments for the domestic market within a year.

Software pivotals outperformed the Sensex on a weak rupee, which hit a 10-week low against the dollar. India's largest software company by sales TCS rose 2.09% to Rs 1045 and was the top gainer from the Sensex pack. India's second largest software company by sales Infosys fell 0.77%. India's third largest software company by sales Wipro was down 0.46%. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Select PSU shares rose on bargain hunting after a recent slide. ONGC (up 0.54%), Indian Oil Corporation (up 0.96%), Oriental Bank of Commerce (up 3.85%), and BPCL (up 1.45%), gained.

Shares of select stocks collapsed after reports the Securities & Exchange Board of India is examining the possibility of insider trading in shares of these companies. Central Bank of India (down 10.51%), Money Matters Financial Services (down 10%), LIC Housing Finance (down 11.49%) and Pantaloon Retail (down 2.25%) declined.

LIC Housing Finance clocked highest turnover of Rs 370.78 crore on BSE. Core Projects (Rs 298.74 crore), State Bank of India (Rs 243.62 crore), Power Grid Corporation of India (Rs 211.14 crore) and Tata Steel (Rs 124.16 crore) were the other turnover toppers in that order.

Cals Refineries clocked highest volume of 8.09 crore shares on BSE. Karuturi Global (2.55 crore shares), Power Grid Corporation of India (2.21 crore shares), Hindustan Construction (2.05 crore shares) and IFCI (1.79 crore shares) were the other volume toppers in that order.