Sensex and Nifty slump to 14-month low

Indian equities received a fresh drubbing on Thursday, as investors continued to fret about the possibility of another rate hike next month and worries over the worsening global economic backdrop persisted.

Government data showing a drop in food inflation in the first week of August was of no help, as the BSE Sensex slumped 370 points and the NSE Nifty closed below the psychological level of 5,000 for the first time in 14 months.



The selloff in India was part of a worldwide selloff today that spread from Asia-Pacific to Europe. US stock futures tumbled, as trepidation about the global growth prospects and Europe’s sovereign debt crisis weighed on the sentiment.

The dollar and the yen rose against most rivals as global risk appetite ebbed a little while gold was all set to advance for a fourth straight session amid continued safe haven buying.

Sustained weakness in IT, Banking and Metals heavyweights pressured the Large-Cap indices today. Select Realty, FMCG and Capital Goods shares managed to buck the negative trend though.

The market breadth was pretty weak amid relentless selling in the Small-Cap and Mid-Cap counters. The broader market was down for the third straight session today, reflecting the current nervous undertone in the market.

The BSE Sensex ended at 16,455, down 384 points or 2.3% from the last close. It earlier touched a day's low of 16,433 and a day's high of 16,916. It had opened at 16,910. This is the the lowest close for the Sensex since May 26, 2010.

On the other hand, the NSE Nifty fell 112 points or 2.2% to end at 4,944. It touched a day's low of 4,932 and a day's high of 5,078. It opened at 5,077. The Nifty ended below 5,000 for the first time since June 8, 2010.

All the sectoral indices on the BSE closed in the red. Realty, FMCG and Capital Goods were the best performers while IT, Banking and Metals were the worst losers.

Within the Sensex and the Nifty, the top gainers were DLF, RCOM and Hero MotoCorp.

The notable losers in the two main indices were Reliance Infra, HCL Tech, Wipro, Reliance Capital, IDFC, Axis Bank, ICICI Bank, SBI, Jindal Steel, Sterlite Industries, Hindalco, Tata Motors, Infosys, TCS, Kotak, PNB, HDFC and Tata Power.

The BSE Small-Cap index and the BSE Mid-Cap index were down 2.6% and 2.10%, respectively.

The market breadth was highly negative with just about 23% shares on the BSE managing to close in the positive territory. Close to 74% shares traded on the BSE declined.

Reliance Power, Reliance Industries, SAIL, Tata Steel, Sesa Goa, Tata Power, Infosys, Tata Motors, Hindalco, Jindal Steel, Sterlite Industries, SBI, ICICI Bank, Axis Bank, IDFC, Reliance Capital, Wipro and Reliance Infra all touched a new 52-week low today.

"Now that the Nifty has slipped below 5,000, a level of 4700-4800 cannot be ruled out given the weak global backdrop and concerns over slowdown in the Indian economy. One must continue to tread cautiously as volatility is likely to persist.

The broader market has been weak over the past few sessions. One should be careful while trading in this set of stocks as they tend to be volatile and illiquid," says Amar Ambani, Head of Research, IIFL - Private Client Group.

Meanwhile, Morgan Stanley cut its 2011-end target for the Sensex by 15% to 18,850, saying that the country’s economic growth and corporate earnings will slow.

The US brokerage firm also reduced its forecast for India’s 2012 GDP growth to 7.4% from 7.8% and its GDP estimate for FY13, to 7.6% from 8%.

The Sensex is down 22% from its peak on November 5, 2010. It closed last year at 20,509.

In global action, European stock markets dropped sharply. The Stoxx Europe 600 index fell 2.5% to 232. All the major regional indices are down 2-3.5%. Cement firms were among the worst performers after Holcim's results disappointed investors.

Most Asian markets closed sharply down as well, led by exporters amid persistent worries over the state of the US and European economies. Indices in Japan, China, Australia, South Korea and Taiwan lost over 1% each.

Morgan Stanley and Deutsche Bank cut their forecasts for China’s GDP growth, citing weakness in the US and Europe.

Japan’s exports fell more than expected in July, as a global slowdown and a strengthening currency weighed on the nation’s overseas shipments.

Crude oil futures dropped from a two-day high in New York amid concerns that a slowing global economy will crimp demand for fuels. But, gold advanced for a fourth day amid continued safe haven buying.