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Mega IPOs suck out cash, Sensex dives

The BSE Sensex plunges 279 pts to close at 14,225, Nifty falls 86 pts to end at 4,198, reports Vyas Mohan.

business Updated: Jun 07, 2007 04:15 IST

The three big-ticket stock listings expected this month — DLF, ICICI Bank and Central Bank, together amounting to Rs 22,000 crore — are being considered watersheds in Indian stock market history, but on Wednesday the markets saw how they could also cause temporary pain.

The impending initial public offerings (IPOs) — ICICI is looking to raise Rs 12,000 crore, DLF Rs 9,625 crore and Central Bank Rs 1,000 crore — drained cash from the market, causing a liquidity crunch and making the Sensex plunge 279 points to close at 14,225. The National Stock Exchange’s Nifty fell 86 points to close at 4,198.

That, combined with the looming advance corporate tax deadline, made the Street apprehensive.

In the past, too, investors have offloaded holdings or held back investments to buy into new market entrants. “There were similar sell-offs when Oil and Natural Gas Corporation and Tata Consultancy Services listed. Only, nowadays money moves faster and markets will face a liquidity crunch for a brief period only,” said AK Sridhar, chief investment officer at UTI Mutual Fund.

Many experts say there is no cause for worry as overnight call money rates are near 10-year lows, indicating abundant liquidity.

Call money is the rate of interest paid on funds banks borrow from each other on a daily basis, and a lower rate indicates that banks are flush with funds.

Further, foreign money will come to these issues through institutional investors.

Analysts expect the markets to show a clearer direction by the middle of this month. “Advance tax payments and the mega IPOs will hit liquidity for a while, but a more clear direction will emerge only after June 15 when advance tax numbers start flowing in and the market extrapolates first-quarter profits,” said Manish Sonthalia, vice-president (equity strategy), at Motilal Oswal.

First Published: Jun 06, 2007 15:47 IST