Indian stocks could not shake off a global bear grip with the Sensex touching a low of 12,504 on Wednesday before closing at 12,529.62, a fall of 453.36 points. The Nifty shut shop at 3,641.10 points, down 129.45.
The overnight fall in the US stock markets due to a looming fear of defaults in home loans and poor retail sales in February lead to a worldwide meltdown.
There is no local play. It is pure global play, said Ramdeo Agarwal, managing director, Motilal Oswal Securities.
The US slowdown looks real. But India, with 83 per cent domestic consumption, will come out stronger, said Ajay Bagga, CEO, Lotus India Mutual Fund.
The US slowdown's effect on India is expected to be limited to costlier borrowings for Indian companies and to foreign fund inflows into the stock market.
Though the fall in stock prices was across the board, bank and information technology stocks were hit the hardest. The BSE banking index fell by 4.14 per cent and the infotech index by 3.97 per cent while the Sensex took a hit of 3.49 per cent. Among the index heavyweights ICICI Bank fell by 5.43 per cent, Bharti Airtel by 4.7 per cent, and Wipro by 4.58 per cent and Infosys by 4.1 per cent.
A possible rise in defaults in the US mortgage market has raised doubts about the Indian housing loan market as well. Indian banks are currently under-provisioning for expected defaults, which the markets have started discounting, leading to the sharp fall, Ashutosh Narkar, senior research analyst, India Infoline, said on the fall in bank stocks.
Infotech stocks, reeling from the newly imposed minimum alternative tax and the tax on sweat equity, regressed further with the US slowdown data. US retail sales grew by 0.1 per cent against market expectations of 0.3 per cent and business inventories piled up in January. Revenues from the US constitute 60 per cent of the total sales of Indian infotech companies. The US slowdown can cut down business. It could also increase offshoring work to India if they are looking at cutting costs, said Bagga.
Advance tax payments begin on Thursday and estimates are they will be a 30-35 per cent higher collection this year. Indian corporate earnings should stay on track, Bagga added. Fourth-quarter corporate earnings will start flowing in from April and that could drive share prices, a point about which all market participants are in agreement.