Why did the Sensex fall 600 points?

New Delhi: Bears had taken full charge on Friday and hammered the bulls heavily as Sensex lost over 500 points on the last trading day of the week, much to the dismay of brokers and analysts who had jubilated over its record rise to 15,700 points during the past one week.

It was really a ‘Black Friday’. India’s oldest index, Sensex shed 616.63 points (down 3.9%) during intraday trade and NSE’s Nifty nearly 196 points on the back of negative cues from global indices.

The fall was initiated by cracks in US markets. In Thursday’s trade, Wall Street major index, Dow Jones Industrial Average plunged nearly 311 points and that steep fall extended on Friday also, down about 208 points.

The plunge was seen in US on concerns that higher corporate borrowing costs would curb the rapid pace of takeovers that had driven stocks higher this year. Investors also feared the sluggish environment for home sales and continued defaults in subprime loans would spur debt defaults and weigh on corporate earnings.

The fall was mainly attributed to heavy sell-off from the FIIs. The foreign institutional investors pressed the sell button and gave away shares worth Rs 1,475 crore in the cash market (provisional figures). Major impact was seen in Futures and Options (F&O) market, where FIIs were net sellers to the tune of Rs 5,343.70 crore (Rs 53.43 billion).

They also sold Rs 4,985.15 crore worth of shares in Nifty Futures and Rs 553.21 crore in Stock Futures.

However, FIIs were the net buyers in Nifty options of Rs 197.44 crore and domestic institutional investors also bought Rs 727.32 crore worth of shares in Friday’s trade.

But analysts are not seeing any major impact like what happened in May 2006. Manishi Raychaudhuri of UBS feels that the problem in US consumption is not the reason for fall and feels that India is not linked to US consumer slowdown. He feels that India looks stretched and is trading around PE of 17.7x. Manishi Raychaudhuri adds that the correction is unlikely to be of the magnitude as seen in 2006 and feels that more money is waiting to come into India.

In Friday’s trade, ITC, Ambuja Cements, Ranbaxy Labs and Suzlon Energy did not succumb to profit booking, though they slipped in the morning trade but recovered in the afternoon trade.

Tata Steel, Sterlite Industries, MTNL, HDFC, Reliance Communications, Hindalco and BHEL were the top losers on the bourses.

With excerpts from a Moneycontrol.com report