The Bombay Stock Exchange sensitive index, Sensex, tumbled 388.82 points or 2.30 per cent, ahead of European Union meet to discuss the Euro Zone debt issues while concerns on domestic growth aided the fall.
The benchmark index ended down to 16488.24 on Thursday against 16877.08 on Wednesday and the fall was led by consumer goods which dropped 4.40 per cent followed by realty 3.80 per cent, metal 3.15 per cent, power 3.02 per cent oil and gas 2.98 per cent, banks 2.71 per cent and PSUs 2.42 per cent.
All sectoral indices ended in the negative territory.
The National Stock Exchange index S&P CNX Nifty fell by 118.95 points or 2.35 per cent to 4943.65 from 5062.60.
Surprisingly, the market indices dipped sharply even after the food inflation dropped significantly to a three-year low of 6.60 per cent for the week ended November 26 from 8 per cent in the previous week.
“The sharp drop in food inflation over the past one month or so is likely to provide some much-needed breather to consumers and the policy makers. However, it will be a while before the Reserve Bank of India starts considering a cut in its policy rates,” said Amar Ambani, Head of Research, IIFL.
Media reports of a possible CRR cut by the RBI have been doing the rounds for the past few sessions. But, the central bank officials continue to be in denial mode. RBI deputy governor Subir Gokarn is the latest one to dismiss rumours of a CRR cut. The RBI will meet on December 16 to review its monetary policy. It has already announced its intention to maintain a status quo on rates. Still, the RBI commentary will be important given the worsening macro-economic situation — domestic as well as global.
“Focus will once again shift to the two-day EU Summit that ends on Friday and Chinese economic statistics. Also, IIP (Index for Industrial Production) for October is due on Monday and will have a bearing on the market sentiment,” Mr. Ambani added. However, he said that the biggest issue facing India was the Government's inability to take any firm action on issues of economic importance. “This needs to change considerably and fast to reverse the tide.”
“Developments on the political front related to the 2G fiasco induced selling pressure and soon the markets had lost over 2 per cent”, said Sanjeev Zarbade, Vice-President (Private Client Group Research), Kotak Securities Ltd. Concerns over the fiscal health of the country might have also weighed on the market. The BSE capital goods index was one of the biggest loser. Heavy sell-off was also seen in realty, metal and oil & gas sectors. The European indices were volatile but remained in the green. This suggested that Thursday's sell-off in equities was mainly due to issues on the domestic and economic front.
Looking ahead, said Mr. Zarbade, important market moving events included meetings of ECB and EU, both scheduled on Thursday. The ECB has reduced the interest rates to 1 per cent from 1.25 per cent. “The street would also be cautious before the IIP October data to be announced on Monday. Hence, net-net, given the upcoming events, market mood may remain cautious.”
