Indian shares lose 7.4 pct in vicious sell-off

Indian shares tumbled almost 11 percent to a four-month intra-day low on Monday, suffering their biggest intra-day points fall ever on margin calls and foreign selling, before paring their losses to end down 7.4 percent.

The drop of more than 2,000 points triggered a brief halt in afternoon trading on the benchmark BSE 30-share index.

"It was panic," said Nikhil Jain, an independent trader.


"You should have seen the faces of people playing in the futures and options market. People even said 'I won't play in the markets any more'."

At the depth of the sell-off the market had shed 10.85 percent to 16,951.50, its lowest since late September, but short of a 17 percent intra-day fall in May 2004 that followed an unexpected election result.

Local funds were buyers after the trading halt, and in the last 40 minutes the market recovered somewhat to close 7.41 percent down at 17,605.35 points.

Index heavyweights Reliance Industries Ltd and private lender ICICI Bank Ltd led the drop as stocks around Asia felt the heat of investor disappointment at a U.S. stimulus proposal, with markets concerned it may not prevent a recession.

Dealers said the market was already short of cash after India's largest initial public offering closed on Friday, and the situation was exacerbated after margin calls following last week's index fall of almost 9 percent.

"The fall is led by margin funding calls which has triggered this large selling, and plus there is a liquidity shortage," said Vikas Khemani, co-head of institutional equities at Enam Securities.

"We have corrected the most among the Asian markets. Factors like weakness in overseas markets have also contributed to the fall," Khemani said.

CIRCUIT BREAKS

The 50-share NSE index shed as much as 12.76 percent to a four-month low of 4,977.10 points before closing 8.7 percent down at 5,208.80.

Data on the BSE Web site showed selling was so heavy that almost 50 percent of stocks had sellers but no buyers.

It said 1,325 companies hit their lower circuit, where trading in that stock is automatically halted. On the broader market, 2,657 stocks fell, outweighing just 137 gainers in total volume of more than 425 million shares.

The benchmark index hit the latest in a series of record highs on Jan. 10, after a 47 percent gain in 2007.

But it tumbled sharply last week as other markets fell and analysts said pressure stemmed from a $3 billion IPO from Reliance Power, which had investors borrowing to be part of the sale. At Monday's close, the index was 17 percent below its peak.

"There is a liquidity squeeze right now in the market because a lot of people who had borrowed money to invest in the big IPOs have not been able to raise cash in this market," said Deepak Jasani, head of retail research at HDFC Securities.

Paras Adenwalla, chief investment officer of equity at ING Investment Management, said the market had needed a correction and he saw it falling a further 5-10 percent.

"The premium that the Indian markets are getting will certainly shrink significantly," Adenwalla said.

Elsewhere, Karachi's 100-share index eased 0.18 percent to 13,850.03 points while Colombo's All-Share index gained 0.24 percent to 2,387.93 points.

STOCKS THAT MOVED

* Oil and Natural Gas Corp (ONGC), India's largest oil producer, shares fell 7.9 percent after its quarterly net profit fell 6.5 percent.

* Reliance Industries, India's most valuable listed firm, fell 9.1 percent to 2,544.20, a three-month closing low, and ICICI Bank, the country's most valuable bank, fell 5.8 percent.

Together the two firms account for more than one quarter of the benchmark index.

* Shares in India's fourth-biggest outsourcing firm, Satyam eased just 0.32 percent after it reported a 29 percent rise in quarterly profit due to new clients, and raised its full-year outlook.

MAIN TOP 3 BY VOLUME:

* Reliance Natural Resources Ltd on 27.5 million shares.

* Ispat Industries Ltd on 25.5 million shares.

* Reliance Petroleum Ltd on 24.7 million shares.


Source: Reuters