DMK support withdrawal clouds rate cut; Sensex plunges 285 points
After a higher start at 19,378.61, the Sensex dropped below 19,000 level before ending 285.10 points lower at 19,008.10, a level last seen on March 5.
Mumbai: The BSE benchmark Sensex on Tuesday plunged below 19,000 level but just managed to close at 19,008.10, still down by a hefty 285 points, on across-the- board selling sparked by DMK's withdrawal of support to UPA government that overshadowed RBI's rate cut.
Experts said markets reacted cautiously to RBI's rate cut as the sentiment was hit by Reserve Bank's statement that scope for future rate cuts is limited.
They said the Sensex was dragged down by telecom major Bharti Airtel which nosedived 4.74 percent-- day's second biggest loser-- after a Delhi court summoned its Chairman Sunil Bharti Mittal in additional spectrum allocation case.
Markets were panic-stricken after the DMK withdrew support to Congress-led UPA government and pulled out its five central minister over the issue of alleged human rights violations of Tamils in Sri Lanka.
In knee-jerk reactions, the Sensex at one point plummeted 300 points to trade below 19,000 level.
Markets tried to stage a recovery after Finance Minister P Chidambaram's remark that government enjoyed majority and it was "absolutely stable". But weak European cues did not aid the recovery and the sentiment remained gloomy.
The Sensex finally ended the day at 285.10 points lower at 19,008.10, a level last seen on March 5. The index has lost 562.34 points in straight three sessions of losing string.
The NSE index Nifty shuttled between 5,863.60 and 5,724.30 before ending lower by 89.30 points to 5,745.95.
"The credit policy announced by RBI was overshadowed by DMK Chief Karunanidhi's statement withdrawing support to the UPA government," said Rakesh Goyal of Bonanza Portfolio.
RBI cut key policy rate by 0.25 percent to 7.5 percent but kept the CRR unchanged at 4 percent. Governor D Subbarao, however, said "...Even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited."
RBI Governor's comments on inflation, investment slowdown and current account slowdown, indicates that sharp rate cuts in future are unlikely, Goyal said.
"Political and economic scenario is worsening. Downside momentum is building up. Big fall may be in the offing," said Vijay Kedia, Director Kedia Securities.
According to K Subramanyam, AVP - Institutional Research, Asit C Mehta, "While a 25 bps rate cut was more or less discounted, the RBI Governor's statement that there is very little headroom for further rate cuts hints a cautious approach and thus the broad expectation of 75-100 bps over the year by even leading bankers looks in doubt at the current juncture."
Heavyweights like HDFC, ICICI Bank, L&T, Bharti Airtel, M&M, SBI, ONGC, RIL, TCS, HUL, Tata Motors, Jindal Steel, Hindalco and Coal India closed with marked losses.
Asian stocks, barring Hong Kong that closed in negative terrain, recovered from its overnight steep losses after news of a bailout for Cyprus filtered in and settled higher between 0.35 percent and 2.03 percent.
However, European markets were trading further weak in early trade on worries over Cyprus bailout plan, including a controversial levy on bank deposits. The CAC was down by 0.45 percent, the DAX by 0.44 percent and the FTSE by 0.17 percent.
In the local market, 24 out of 30 Sensex-based stocks ended in the red while others finished in the green.
BHEL dropped by 5.05 percent, Bharti Airtel 4.74 percent, Sterlite Ind 4.15 percent, Jindal Steel 3.96 percent, M&M 3.45 percent, HDFC 2.78 percent, Tata Steel 2.74 percent, L&T 2.63 percent, Hero MotoCorp 2.51 percent, ONGC 2.41 percent, Hindalco 2.41 percent, HUL 2.17 percent, SBI 2.03 percent, Cipla 1.93 percent, ICICI Bank 1.92 percent, HDFC Bank 1.89 percent, Coal India 1.50 percent, Dr Reddy's Lab 1.36 percent, TCS 1.26 percent, Tata Motors 1.12 percent and RIL 0.79 percent.
From sectoral indices, S&P BSE-Realty tanked by 3.63 percent, S&P BSE-CD 2.69 percent, S&P BSE-Metal 2.59 percent, S&P BSE-PSU 2.08 percent, S&P BSE-Power 1.99 percent, S&P BSE Bankex 1.97 percent, S&P BSE-Oil&Gas 1.31 percent and S&P BSE-Auto 1.28 percent.
Meanwhile, FIIs bought shares worth Rs 506.01 crore yesterday, as per provisional data from stock exchanges.
The total market breadth remained negative as 1,958 stocks concluded with losses against 904 that closed with gains. Total market turnover was sharply up at Rs 2,363.55 crore from Rs 1,755.57 crore yesterday.