Stocks fall as selling continues

The market declined sharply in first half of the trading session, but recovered some ground on value buying coupled with short covering at lower level later. Intense volatility was the hallmark of the day's session, with the market swinging sharply. European markets and Asian markets were trading lower yesterday.

India's wholesale price index rose 3.07 per cent in the 12 months to October 6, 2007, lower than the previous week's 3.26 per cent rise, government data released today afternoon showed. It was the lowest annual rise in 5 years.

The BSE 30-share Sensex settled 438.41 points or 2.44 per cent lower at 17,559.98. It opened slightly higher at 18,031.77. It immediately stated declining sharply. Sensex hit a low of 17,226.18, on intense selling pressure. At the day's low of 17,226.18, the Sensex had lost 772.21 points for the day. Sensex oscillated 805.59 points in the day.

Sensex settled the week ended yesterday with a loss of 859 points or 4.7 per cent. From an all time high of 19198.66 struck on Thursday, the Sensex is down 1638.68 points.

FII selling hit the bourses for the third day in a row yesterday following market regulator Securities & Exchange Board of India's proposals to clamp down FII inflow through the participatory notes (PN) route.

After trading hours on Tuesday, October 16, 2007, Securities & Exchange Board of India issued draft proposals wherein the market regulator proposed restriction on use of the popular participatory notes (PNs) route of FII inflow and it also recommended unwinding of some PNs within 18 months. PNs are financial instruments used by foreign investors that are not registered with Sebi, to invest in Indian shares. FIIs and their sub-accounts buy Indian securities and then issue PNs to foreign investors with these securities as the underlying.

Given the large scale of the aggregate PN holding relative to new flows, even a partial unwinding of positions can put considerable pressure on stocks such as Reliance Energy, Reliance Petroleum, ONGC, IndiaBulls Financials, IndiaBulls Real Estate and Axis Bank which have had a significant run-up in the past few weeks or have high share of PN in their foreign holding, brokerage CLSA said in a recent note.

Further, analysts reckon that with restriction on participatory notes, the near term FII inflow may be affected given that the participatory notes contributed substantially to FII inflows on the bourses over the past few months and it will take some time for the FIIs currently using the PN route to get registered with the market regulator.

India's second largest power utility by net sales Reliance Energy was the top loser from the Sensex pack. It plunged 16.30 per cent to Rs1332 on 42.74 lakh shares. Yet, the stock recovered sharply from its day's low of Rs1272.

Hindalco Industries (down 6.39 per cent to Rs175), Maruti Suzuki India (down 6.77 per cent to Rs1071), and Bharat Heavy Electricals (down 5.65 per cent to Rs2059), were the other losers from Sensex pack.

India's largest private company in terms of market capitalisation and oil refiner Reliance Industries (RIL) was down 3.72 per cent to Rs2480, off sharply from its day's low of Rs2413.05. The stock clocked volumes of 23.35 lakh shares. It reported 27.9 per cent growth in net profit to Rs3837 crore on 6.6 per cent growth in net sales to Rs32,043 crore in Q2 September 2007 over Q2 September 2006. The results are after taking effect merger of IPCL in the company. RIL's gross refining margin was a robust $13.6 a barrel in Q2 September 2007 compared to $9.1 in Q2 September 2006.

Though the results were strong, there was no announcement of stock split/bonus which weighed on the stock yesterday. The market was agog with speculation that RIL could announce a bonus issue or stock split at the time of announcing the Q2 results. The results hit the market after trading hours on Thursday.

Reliance Communications, the country's second largest listed telecom services provider in terms of market capitalisation was the top gainer from the Sensex pack.