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Cash-flow cut, FIIs? exit sink index

india Updated: Dec 12, 2006 01:55 IST
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IT HAS been a record December for the Sensex.

After clocking the second-fastest 1,000-point rise in its history and briefly spiking past 14,000 points, the Sensex crashed 400 points on Monday, the seventh-largest single-day fall in its history.

The Sensex closed at 13,399.43, down 2.9 per cent. The Nifty lost 112.5 points, or 2.84 per cent.  On paper, investor wealth, as represented by market capitalisation, or the combined value of stocks available for trading on BSE, lost a numbing Rs 1.73 lakh crore.

While traders pointed to inflation worries and fears of a potential growth slowdown triggered by the Reserve Bank of India’s (RBI) move on Friday to tighten money supply by increasing the cash reserve ratio (CRR), the real reason for the freefall may well have been sell-offs by foreign institutional investors (FIIs), whose moves are shadowed by domestic players. FIIs sold shares worth Rs 334 crore.

Banking stocks fell, following the awareness that a CRR hike would reduce the funds available with the banks for lending, potentially affecting earnings. State Bank of India shares clocked the biggest loss on the BSE. The scrip tumbled by over 8 per cent to close at Rs 1,242.75.

As Tata Steel’s bid to buy steel manufacturer Corus received a setback — its revised offer was topped by Brazilian rival CSN — markets too reacted negatively. Tata Steel lost over 6 per cent on the BSE.

Analysts, however, said a correction was expected.

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