Fears of a global credit squeeze spooked the domestic stock market today, sending the benchmark Sensex into a 642-point tailspin and erasing Rs 1,70,000 crore of investors wealth as foreign funds looked for safer havens to evade possible spread of US subprime mortgage crisis.
As soon as the market opened after the Independence Day holiday, the Bombay Stock Exchange barometer Sensex fell 415.99 points as it mirrored the impact of a fresh global stocks meltdown. The index fluctuated in a range of 14,584.92 and 14,345.03 before ending the day at 14,358.21, a net fall of 4.28 per cent from Tuesday's close.
This is the biggest fall this fiscal and second biggest ever in absolute value terms. This is also the third time this fiscal that the key index has fallen over 600 points in a day. However, this is the second-biggest fall in 2007-08 and 33rd overall in percentage terms.
Investors lost a whopping Rs 1,70,000 crore, taking the total loss since the US subprime crisis first hit domestic bourses late last month to nearly Rs 3,30,000 crore.
Bourses worldwide crumbled for the second day in a row on selling triggered by the turmoil in US credit markets after two other American mortgage lenders seemed to be in trouble.
The broader S&P CNX Nifty of the National Stock Exchange (NSE) nosedived by 191.60 points or 4.38 per cent to close at a two-month low of 4,178.60 from previous close of 4,370.20.
Market players said fresh selling onslaught was triggered by fears of a global credit crunch that led to consistent pull out by Foreign Institutional Investors (FIIs). All indices, including sectoral and dollex, were down by 4.0-6.5 per cent.
Indices in Japan, China, Hong Kong, Singapore, Taiwan and South Korea ended down by 2.0 to 7.0 per cent.
Fresh scare in global markets was set off by worries that Countrywide Financial, the largest US mortgage lender, could face bankruptcy if liquidity worsened after Merrill Lynch downgraded its shares, reportedly disclosing this possibility.
Another mortgage real-estate investment trust Thornburg Mortgage reportedly announced it would stop making new loans and delayed a dividend payment after getting margin calls.
Central banks worldwide have pumped in billions of dollars in the past few days to ease concerns of a credit crunch following the US subprime mortgage defaults.
Brokers said reports of scrutiny by Income Tax officials of returns filed by large cap companies in BSE and NSE could have also affected market sentiment.
Analysts said the selling by foreign funds indicated significant withdrawal requests received by hedge funds after the expiry of the August 15 deadline for redemptions during the July-September quarter.
FIIs' net withdrawal has crossed Rs 2,500 crore so far in August, as per SEBI data.
On the BSE, all the 30 Sensex scrips registered sharp losses. Heavyweight counters like RIL, SBI, Grasim, ICICI Bank, ONGC, Bharti Airtel, HDFC, BHEL, Infosys Tech and L&T closed with losses.
The market breadth was highly negative with 1,869 shares showing falls against 842 others in black.
The trading volume spurted to Rs 5,646.63 crore from Rs Rs 4,232.40 crore on Tuesday. IVR Prime on the first day of its listing, clocked the highest turnover of Rs 328.87 crore followed by ICICIBank (Rs 216.60 crore), RIL (Rs 201.89 crore) Tata Steel (Rs 201.89 crore) and Ltd DLF (Rs 150.28 crore).