Indian equities declined for a third straight session on Monday with the Nifty recording the biggest single-day fall ever in absolute terms, while the Sensex recorded its second-highest fall. The indices fell amid weak global markets as accelerating inflation in the US dampened hopes of a further cut in Fed rates soon.
The 30-share benchmark Sensex of the Bombay Stock Exchange ended lower by 769.48 points or 3.84 per cent at 19,261.35 points, the 50-share Nifty of the NSE lost 270 points or 4.48 per cent to close at 5,777 points. Monday's fall was the second-biggest fall for the Sensex after May 18 last year, when the index lost 826.38 points. All BSE indices closed lower, with the BSE Metal index topping the losers, down 7 per cent on worries that a high-inflation scenario along with a possible recession in the world's biggest economy could lower demand for the commodity.
All major global indices closed the day in the red. While Hong Kong's Hang Seng lost 967 points or 3.51 per cent to close at 26,596.58 Japan's Nikkei ended weaker by 1.71 per cent or 264.72 points at 15,249.79.
“Several factors including the expected delay in Fed rate cuts, FII selling and weak global markets contributed to today's meltdown. The frontline stocks could temporarily find support tomorrow after falling for three sessions. However, it is to be seen as to whether that bottom holds,” said Deepak Jasani, head of retail research at HDFC Securities.
The fall in Indian shares may be seen as a follow through to the continuing weakness among Asian indices after the US Federal Reserve cut interest rates by 25 basis points last Wednesday. According to chartists, Tuesday's close for both the Sensex and the Nifty should prove to be an indicator for the immediate future."Today's correction is part of the global trend. Tomorrow, if the Sensex closes above 19,000 and the Nifty above 5,700, the markets should bounce back soon," said Prem Daga, a technical analyst.
According to an S&P broad market index report released at the end of last month, Indian markets emerged as the biggest gainer in a three-month period, and also recorded least of the falls in the one-month period ending November 30, 2007. Further, with the US consumer price index growing 0.8 per cent in November, the biggest one-month increase since a 1.2 per cent rise in September 2005, the chances of a further interest rate cut in the world's largest economy look diminished. Overall inflation in the US rose 4.3 per cent in November from last year. A rate cut makes money cheaper, resulting in fund flows into asset classes of economies that generate higher rate of return on investments.
The Sensex and the Nifty have maintained a close of above 20,000 and 6,000 for four sessions. Thus, resistances or supports found at these levels are considered to be crucial by technical analysts to foresee the short-term trend.
The rupee fell the most in two months on concern sliding local equities will prompt global funds to reduce investments in the country. The currency fell to the lowest this month after the nation's benchmark share index declined the most in four months.