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Sensex swings with global tides

Market was once again seen swinging with global tides when the Sensex plunged more than 600 points.

india Updated: May 31, 2006 15:29 IST

Market was once again seen swinging with global tides when the benchmark Sensex plunged more than 600 points in intra-day trade, indicating globalisation of Indian bourses in true sense.

An analysis of the recent pattern in the stock market movements shows that the domestic bourses have been mostly following the global cues, especially since the beginning of recent downslide on May 11.

Moreover, the markets have followed the global trends not only during the falls but also during the occasional upswings over the past few weeks.

Domestic market is also likely to remain mostly insulated from some major developments on the domestic front, especially during its weak days, such as good corporate earnings results, liberal bonus and dividend announcements, expectations for a good monsoon and an upward revision to the FY'06 GDP growth figures.

Also, the domestic mutual funds have remained net buyers on most of the days, but have helped the markets close in positive territory only on a couple of occasions.

Market observers said that Wednesday'ssharp plunge witnessed on domestic bourses was largely driven by the overnight weakness in the US markets triggered by inflation and interest rate concerns and fall in base metal prices on the London Metal Exchange, the two usual culprits of the recent downslide that also saw a one-hour trading suspension.

After opening more than 100 points in the red today, the benchmark Sensex plunged more than 600 points before the mid-day trade.

Broad-based selling was witnessed in the US markets yesterday, as the latest consumer confidence report showing further likelihood of rate hikes refuelled investors' concern over inflation and interest rates.

All three benchmark indices, S&P, Dow Jones Industrial Average (DJIA) and Nasdaq lost more than 2 per cent.

Disappointing monthly sales report from retail giant Wal-Mart Stores also added to the market woes in the US yesterday, as the marketmen attributed a slowdown in consumer spending as the spoilsport for Wal-Mart figures.

A mirror effect was witnessed across most of the Asian and European markets, while weakness on LME and a jump in the global crude oil prices to above 72 dollar per barrel further compounded the agony.

Investors' concern over further interest rate hikes in the US and weakness in global metal prices have been two major triggeres in shaping the direction of domestic bourses on lines of the global trends.

On May 11, the day when the Sensex began its slide, the reports of further hike in the US interest rates was named as the main trigger.

Market experts also attribute the reason for FIIs going on a sell-off spree across emerging markets, including India, primarily on further rate hike possibilities in the US.

After pumping more than 10 billion dollars into the Indian market in 2005, the FIIs are estimated to have invested further 5 billion dollars up to May 11 this year. However, they have pulled out more than 2 billion dollars from the Indian equity market since May 11.

Meanwhile, an upturn in global investor sentiments has also helped the domestic bourses bounce back during select trading sessions since May 11.

For example, in two trading sessions between May 16-17, the 30-share barometer index had surged ahead nearly 400 points on the back of an inflation report that fuelled expectations of a halt in further rate hikes by the US Federal Reserve.

The Sensex had surged ahead 344 points on May 17, while it had closed 52 points up on May 16 after recovering nearly 500 points from the day's low.

Again on May 26, the Sensex moved up 143 points after a weaker-than-expected first-quarter GDP data in the US allayed concerns about further rate hikes.

In the next trading session on May 29, the domestic bourses continued with a modest upward march, as there were no fresh concerns over rate hikes.

Market observers said that volatile movements with a downward bias are likely to continue on the domestic bourses, as long as the global investor sentiments remain weak.

As per the latest data, FIIs sold shares worth more than Rs 200 crore yesterday, while taking the cumulative outflow for this month to more than Rs 7,300 crore.