Despite US lawmakers reaching a consensus on the proposed $700 billion bailout deal, investor skepticism grew over the deal and triggered a global selloff on Monday. The Sensex fell to a new year-low of 12,402 before recovering to close at 12,595.
The Nifty closed at 3,850, down 3.4 per cent, or 135 points.
Investors were anxious that the global credit crisis will take a very long time to clear up and will likely drag on global economic growth.
Major Asian markets closed lower, with benchmark indices in Korea, Japan and Hong Kong down between 1.3 per cent to 4.3 per cent. The major European markets too opened sharply lower.
“The Indian markets are very fickle and volatile based on US happenings and the volumes are very low,” said K N Vaidyanathan, CEO of Alchemy Capital Management.
Frontline stocks like Hindalco, Tata Steel, DLF, RCom, Ranbaxy, TCS, Satyam, JP Associates, and ICICI Bank touched their year lows on Monday. HUL however touched its year high of Rs 265 in intraday trade on defensive buying in a weak market.
India’s largest private bank ICICI dropped over 12 per cent to close at Rs 493 after touching the year low at Rs 483 in intraday trade. It was the biggest loser among the Sensex stocks.
“This is a cyclical correction for India within a long-term secular bull market. The 11,000 levels are likely the final target for the downside of the Sensex. But India is falling at a more manageable rate than China, which is down 65 per cent,” says Robin Griffiths, technical analyst at Cazenove Capital Management.
Tata Consultancy Services slumped to its year low at Rs 612 intraday trade on BSE following reports that it is eyeing Siemens' IT solutions and services unit. HCL Technologies fell more than 8 per cent to Rs 195 on BSE after JP Morgan cut rating to the stock to neutral from overweight after the company launched an 8.33 per cent higher all-cash offer than rival firm Infosys, for UK-based Axon.
The BSE banking index was the biggest loser among the sectoral indices. It lost 395 points to close at 6175 levels. Among the banking stocks, Indusind Bank Ltd, Oriental Bank of Commerce and Karnataka Bank lost between 7 per cent to 9.6 per cent.
The IT index on the BSE also took a hit to close 5.5 per cent down.
The BSE realty index also fell 189 points to end at 3407 levels. Apart from DLF the other realty stocks that were hammered included Housing Development & Infra, down 13.7 per cent, Sobha Developers, which shed more 9.6 per cent.
Market experts expect volatility in the next one year but at the same time see attractive valuations in the current market. This opportunity should be used to increase allocation to risk assets like equity slowly over the next one year, says S Naren, CIO for Equities, ICICI Prudential AMC.
Some experts even see a rally after this present spell of volatility is over. “What we might see is just a few days or a couple of weeks of really negative sentiment in the market. But then I think you will get the formation of a base. I would expect a really significant rally lasting several months in case of Indian and Chinese markets, adds Griffiths of Cazenove Capital Management.