Bears’ carnival thrash Indian benchmarks; retreat below key psychological levels

The wave of deteriorating global economic pandemonium along with double dip recession jitters callously bludgeoned Indian frontline equity indices and the bears ran berserk dragging the benchmarks even below the psychological 4,800 and 16,000 levels, for a brief period, a level last seen in May 2010. The bourses witnessed frenzy sentiments of risk aversion after the substantial downgrade in global growth forecast over policy failures in the US and Euro-zone nations, inflamed worries over world recession and also fears grew over the future of European banks with heavy exposure to sovereign debt. A flurry of tumultuous economic reports overnight from the US showing a rise in inflation in July, manufacturing sharply weakening in the Mid-Atlantic States, housing sales falling and jobless benefit claims rising, made matter worse by exacerbating investors’ apprehensions amid the crisis of confidence. Concerns over the financial health of European banks which are facing short-term funding stress too pressured banking and financial stocks. The sentiments were further undermined by reports emerging from Japan where a 6.8-magnitude earthquake jolted northeastern coast of the nation and triggering a brief tsunami advisory for waves of up to 20 inches. Fortunately there were no immediate reports of damage or injuries in the temblor, which rattled the area earlier this year by a catastrophic earthquake and tsunami. On the Domestic front though, Indian finance minister Pranab Mukherjee and planning commission deputy chairman Montek Singh tried hard to reinstate some confidence amongst investors but to no avail. According to Montek Singh, the current fiscal year is likely to see the GDP growth of 8-8.3%, as against 8.5% registered during the previous fiscal and he is aiming for annual average economic growth of 9% over the next five years starting from the next fiscal April 2012. Meanwhile, Mukherjee who reviewed the global economic situation with RBI Governor and the Chairman of the PM’s Economic Advisory Council, stated that the effect of the market sentiments in the US and Europe is impacting markets in the short-term. He affirmed that India is better positioned than most other nations to meet its problems and also said that the present crisis can, however, be expected to encourage increase in the equity exposure by foreign pension funds and other long-term institutional investors.

Earlier on Dalal Street, the benchmark got off to a gap down opening and failed to show any kind of strength thereafter. The key gauges slipped around the fifteen month low levels below the psychological 4,800 and 16,000 levels for the first time since May, 2010. But some short covering in high beta real estate stocks in the dying hours ensured that the indices recovered from the lowest point in the session but snapped fourth straight session in the red terrain. Finally the NSE’s 50-share broadly followed index Nifty, took yet another around a triple digit cut to settle below the crucial 4,850 support level while Bombay Stock Exchange’s Sensitive Index, Sensex got butchered by over three hundred points and ended below the psychological 16,150 mark. The broader markets showed little resilience and once again suffered severe pounding amid volatile trades, performing in tandem with their larger peers. In the BSE sectoral space, technology and software counter continued to languish at the bottom of the table on being slaughtered by around four and half a percent amid fears of a worsening crisis in Europe and stalling global economic growth that will adversely impact their earnings. The Capital Goods pocket along with rate sensitive Banking stocks were not spared either, as they plummeted amid fears that another rate hike by RBI would be inevitable as the stubborn inflation has not shown any significant signs of moderation in recent readings. The high beta Realty counter remained the only sectoral gainer in the space climbing over half a percent by the end of trade after heavyweights like DLF and HDIL surged by 2.47% and 1.46% respectively. The markets got obliterated on extremely large volumes of over Rs 2.06 lakh crore while the turnover for NSE F&O segment remained on the higher side compared to Thursday at over 1.90 lakh crore. The market breadth too remained abysmal as there were 773 shares on the gaining side against 2083 shares on the losing side while 105 shares remained unchanged.

Finally, the BSE Sensex got pulverized by 328.12 points or 1.99% to settle at 16,141.67, while the S&P CNX Nifty plummeted by 98.50 points or 1.99% to close at 4,845.65.

The BSE Sensex touched a high and a low of 16,287.72 and 15,987.77, respectively. The BSE Mid cap and Small cap indices got battered by 1.36% and 2.01% respectively.

The top gainers on the Sensex were Jaiprakash Associates up 2.50%, DLF up by 2.47%, Hero Moto up by 2.19%, Hindalco up by 1.13% and Tata Power 1.03%.

On the flip side, Infosys down 5.79%, Tata Motors down 5.28%, L&T down 4.95%, BHEL down 4.63% and ICICI Bank down 3.65% were the top losers on the index.

Realty up 0.77% was the only gainer on the BSE sectoral space while IT down 4.41%, CG down 4.17%, TECk down 3.70%, Bankex down 1.90% and Consumer durables (CD) down 1.68% were the top losers on the BSE sectoral space.

Meanwhile, the agreement with Switzerland for sharing banking information is expected to come into force by next month, the Finance Minister, Pranab Mukherjee said. The finance minister said that the Swiss Parliament had ratified the agreement but as per rules of direct democracy prevalent in that country all cantons (states) have to ratify it. The agreement with Switzerland for sharing banking information of Indians having accounts in Switzerland was signed by finance minister during his earlier tenure in UPA-I government.

“This process will be completed by September. Information will be shared from April 1, 2011, prospectively not retrospectively. No country has agreed to share information retrospectively,” Mukherjee said. By adding further he said, once it comes into force, banking information will be exchanged between the two countries on demand.

India has already done Tax Information Exchange Agreement (TIEA) with four sovereign entities such as Bahamas, Bermuda, British Virgin Islands and Isle of Man, which are already in force. India has also done TIEA with Cayman Islands but the agreement is yet to come into force. These are famous tax havens where black money of individuals from many countries has been parked. India has done Double Taxation Avoidance Agreement (DTAA) with 80 nations, which is already into force whereas DTAA with Columbia, Ethiopia, Lithuania, Taiwan and Tanzania are signed but is yet to come into force. On the other hand, India has started re-negotiations DTAA with other countries such as Italy, Norway, Singapore and Switzerland.

“In the last two years, India has negotiated 16 TIEAs, 18 new DTAAs and has also renegotiated 21 existing DTAAs. TIEA with Bahamas has been signed and has also entered into force. TIEA with Monaco has been negotiated. DTAAs with Republic of Columbia and Taiwan have been signed and are waiting to be entered into force,” finance minister said.

Mukherjee said “DTAAs and TIEAs help in countering the menace of tax evasion and black money stashed in foreign banks by helping in collection of information regarding tax evasion and foreign bank accounts. DTAAs also sometimes help in collection of taxes from assets located abroad. 27 out of 80 DTAAs contain such a provision for assistance in collection of taxes”.

TIEA is a concept creased to deal with tax havens where banks are established and do not share information and act as ‘sovereign entities’. The finance minister informed Parliament that after 2008, and during the London and Pittsburgh summits, all countries including Switzerland, which were not cooperating earlier in sharing banking information, were asked to co-operate. Every country had its own detailed and elaborate procedure of entering into and ratifying international agreements, Mukherjee added.

The S&P CNX Nifty touched high and low of 4,893.60 and 4,796.10, respectively.

The top gainers of the Nifty were JP Associates up 3.00%, DLF up 2.85%, Hero Moto up 2.17%, Hindalco up 2% and R Infra up 1.20%.

On the flip side, Tata Motors down 5.58%, Infosys down 5.48%, L&T down 4.98%, BHEL down 4.71% and Dr Reddy’s down 3.59% were the top losers on the index.

The European markets were trading with colossal losses. France's CAC 40 shaved off 2.52%, Britain's FTSE 100 plummeted 2.20% and Germany's DAX got slaughtered by 3.86%.

Bloodbath was witnessed in Asian region and all the Asian equity indices shut shop in the red on last trading day of the week as renewed concerns the global economy will tip back into recession gripped investors. Indonesia's main stock market index tumbled about four and a half percent as big caps came under selling pressure amid fears about a possible US recession and financial problems for European banks. Moreover, South Korean Seoul Composite remained the biggest loser among the Asian peers, crumbled over six percent led by shipbuilders and chemicals while, Programme trading was suspended for five minutes from 0403 GMT. Blue chips fell across the board. Other major indices like Hang Seng and Nikkei 225 too butchered during the trade.