Sensex plunges as Congress disappoints, global leads rattle

The hammering on Indian stock markets got extended for yet another session on Tuesday as the benchmarks equity indices capitulated by the end of trade after the initial sharp rebound. The session turned out to be extremely volatile one and the markets got pounded on particularly large volumes.

The psychological 5,400 (Nifty) and 17,700 (Sensex) levels proved as difficult nuts to crack for the frontline indices which drifted lower in late morning trades amid the looming political uncertainty.

Market participants grew increasingly worried as the ideal outcome of a Samajwadi Party (SP) - Congress alliance in Uttar Pradesh assembly elections fell apart since the SP emerged as the single largest party in the state with a clear majority. Investors took profits off the table since Congress’ poor showing in UP elections may not prove fruitful for the government at the centre as it may fail to revive stalled reforms.

The local markets which at one point in time were comprehensively outperforming all the global peers, drifted lower by the end as apart from the political shambles, concerns over the deteriorating global economic situation and also over Chinese Premier Wen Jiabao’s lowering of the world's second largest economy's growth target, dented investors' morale. Investors globally remained in a pessimistic mood amid lingering concerns over debt crisis in Europe, while the weaker than expected economic reports like the shrinking euro-area services output and declining US factory orders too played spoilsport.

Back home, the weakening in Indian rupee which depreciated to above Rs 50 per dollar along with the spike up in government bond yields, too undermined sentiments. On the BSE sectoral space, the Metal index bore the maximum brunt of selling pressure as it got thrashed by close to 4% followed by the Power and Capital Goods counters which plunged around 2%. On the flipside, investors showed some buying interests in defensive - FMCG counter while the Consumer Durables and IT indices too gained some ground.

On the global front, barring the benchmarks in Malaysia, all equity indices in the Asian region settled on a pessimistic note with significant losses. The markets in Europe drifted to the lowest levels in a week as amid rumors that Greek debt restructuring was unlikely until next week.

Back home, the NSE’s 50-share broadly followed index Nifty, got pummeled by over a percent and settled below the psychological 5,250 support level while Bombay Stock Exchange’s Sensitive Index -Sensex- slumped by close to two hundred points to close below the psychological 17,200 mark. Moreover, the broader markets which showed resilience for most part of the day surrendered all the gains by the end and settled with large cuts of over a percent.

The markets got pounded on extremely large volumes of over Rs 1.91 lakh core while the turnover for NSE F&O segment also remained on the higher side as compared to that on Monday at over Rs 1.65 lakh core. The market breadth remained pessimistic as there were 1048 shares on the gaining side against 1773 shares on the losing side while 113 shares remained unchanged.

Finally, the BSE Sensex shaved off 189.58 points or 1.09% to settle at 17,173.29, while the S&P CNX Nifty plunged by 57.95 points or 1.10% to close at 5,222.40.

The BSE Sensex touched a high and a low of 17,691.96 and 17,128.28 respectively. The BSE Mid cap and Small cap indices were down by 1.11% and 1.29% respectively.

The major gainers on the Sensex were DLF up 2.73%, ITC up 1.45%, Infosys up 1.41%, Maruti Suzuki up 1.01% and Coal India up 0.67%, while, Hindalco Industries down 5.75%, Sterlite Industries down 5.44%, Tata Steel down 5.40%, Tata Power down 4.11% and Jindal Steel down 3.67% were the major losers on the index.

The top gainers on the BSE sectoral space were FMCG up 0.79%, Consumer durables (CD) up 0.62% and IT up 0.52%, while Metal down 3.88%, Power down 2.38%, Capital Goods (CG) down 1.94%, Oil & Gas down 1.79% and Bankex down 1.09% were the top losers on the BSE sectoral space.

Meanwhile, the Indian government has banned any further exports of cotton with immediate effect, including orders that have been placed but not yet shipped. The move is likely to push up global prices of cotton as India is the second largest producer of cotton in the world, and bring down domestic prices.

The move has come in all probability with the view to reduce exports which have surpassed government estimates for the month of January fuelling fears of low domestic supply. India had already exported 8.5 million bales, higher than government estimates made in January of 8.4 million bales of 170 kilograms each for the year, due to strong demand from China which has accounted for 80% of cotton exports so far. China is the largest market for cotton exports followed by Pakistan, Bangladesh and Thailand.

However, Indian exporters are not happy with the decision and have stated that the ban could permanently damage India’s reputation in the international market and also bring down domestic prices to support prices very fast.

Cotton production in India was estimated to touch record levels of 35.6 million bales in 2011-12, up from 33.9 million bales last year. However the estimates were revised downwards to 34.5 million bales in September 2011. Supply of cotton in local markets is still lower than expected which could have probably led to the ban on its exports.

The S&P CNX Nifty touched a high and low of 5,382.05 and 5,206.40 respectively.

The top gainers on the Nifty were DLF up 2.84%, Siemens up 2.70%, ITC up 1.55%, M&M up 1.44% and Maruti up 1.28%.

On the flip side, RPower down 7.50%, Hindalco down 6.25%, Tata Steel down 6.08%, RInfra down 6.07% and Sterlite Industries down 5.89% were the top losers on the index.

The European markets were trading in red as France's CAC 40 down 1.43%, Britain’s FTSE 100 down 1.04% and Germany's DAX down by 1.37%.

Sentiment continued to remain bearish in the Asian region and most of the equity indices snapped the day's trade in the negative terrain on Tuesday as slowing economies in China and Europe and tension over Iran dampened sentiment, prompting investors to take profits from recent rallies that had been driven by ample liquidity. Chinese benchmark Shanghai Composite ended down 1.41 percent on Tuesday, the biggest percentage fall in a month, as investors took profits in large-cap shares that led this year's rally. Investors are concerned that financial institutions’ fundraising will weigh on the market, and any further attempts at stake sales could be priced at big discounts. In addition, Japan’s Nikkei share average fell for a second day on Tuesday as investors took profits on blue chips after February's 10.5 percent rally, although attractive valuations and a softer yen supported market sentiment.