Sensex dips under 16,000 intraday on Europe crisis, Korea tension

FIIs turn big sellers; retail investors buy shares for Rs 226 cr.

Concerned with the European debt crisis and troubled by the tensions building up between the two Korean nations, FIIs sold heavily in equities here, sinking the Sensex and the Nifty by 2.7 per cent each.
Risk aversion and the sell-off in assets (equities and currencies) across the world had its impact on the Indian rupee as well. On Tuesday, the domestic currency continued its downward spiral and weakened by over 70 paise to a dollar, closing above the crucial level of 47, last seen in January 2009, said dealers.
FIIs sold equities for Rs 1,464 crore in the net, provisional data released by the bourses showed. Domestic institutional buying Rs 406 crore in the net was not sufficient to offset this. FIIs have been net sellers for Rs 8,488 crore this month so far.
“FII flows have been negative for some time following the euro crisis and its attendant uncertainties. Despite a strong domestic economy it will be difficult for the domestic bourses to withstand negative FII flows,” Mr Krishna Kumar Karwa, Managing Director, Emkay Global Financial Services Ltd, said.
The Sensex dipped below the 16,000 mark in the intra-day trade touching a low of 15,960 points. The benchmark index finally closed at a three month low of 16,022, down by 447 points.
But a fund manager said long-term FIIs have not sold in May. “What we are seeing is more sentimental, it is risk aversion; but money will ultimately chase growth and come to high growth regions,” Mr Arindam Ghosh, CEO, Mirae Asset Global Investments (India), said.
“There is a bit of fear emanating from Euro zone, when that settles, money will flow in,” Mr Ghosh said.
The sell off was broad based, but was the most in metals (the BSE sectoral index tanked 5.10 per cent), consumer durables (4.45 per cent), capital goods (3.09 per cent), and bank (2.62 per cent) stocks. The BSE Mid-cap and Small cap indices fell 3 per cent and 3.43 per cent respectively.
Retail investors, however, saw Tuesday's fall as another opportunity to pick up shares which have become cheaper after the sustained selling of the past few weeks.
On BSE alone, clients' data indicated that retail investors and others bought shares for a net of Rs 226.20 crore.
Rupee breaches 47
The rupee opened lower at 47.25 and closed at 47.71, against Monday's close of 46.98. During the day it touched a low of 47.74.
“There is lot of demand for the dollar due to risk aversion. Also, there is hardly any dollar supply, because exporters have already sold dollars,” said a forex dealer with a public sector bank.
Market participants are expecting the rupee to touch 48 on Wednesday, which could trigger further dollar selling by exporters.
Mr Rugved Dhumale, Associate Vice-President, Risk Management Solutions, Mecklai Financial Services, said that the rupee would continue to be volatile for the next couple of months.
“This trend seems likely to continue for a while. But this is just a consolidation in the equity and currency markets, which were overbought in the past few months. The rupee is fundamentally strong and would strengthen by the end of the year,” he said.
Source; http://www.thehindubusinessline.com/2010/05/26/stories/2010052653530100.htm