Nifty hits fresh 2008 low; Sensex falls 15,000

Realty, banking, oil & gas and power stocks led sell-off on the bourses caused by a sharp surge in global crude oil price and setback in US stocks on Friday, 6 June 2008. BSE Sensex fell below 15,000 mark for the first time since 19 March 2008. The S&P CNX Nifty hit a fresh 2008 low. All the sectoral indices on BSE were in red. The market breadth was extremely weak.

Oil prices surged by their biggest one-day gain ever on Friday, 6 June 2008, rocketing over $10 to a new record high above $139 a barrel, taking this year`s gains to 44%. Oil prices edged lower to $137.7 today, 9 June 2008.

At 11:21 IST, the 30-share BSE Sensex was down 699.51 points or 4.48% at 14,874.55. At the day`s low of 14846.18 hit during mid-morning trade, the Sensex lost 726 points.

The broader based S&P CNX Nifty was down 204 points or 4.41% at 4,423.80. It hit a low of 4411.60. Nifty fell below 2008 low of 4448.50 hit on 22 January 2008.

Oil & Gas stocks fell after global crude oil prices hit the roof. PSU oil marketing companies which had found little solace after government had hiked domestic retail fuel prices were battered today. HPCL (down 11.34% to Rs 188.75), BPCL (down 10.23% to Rs 269), and Indian Oil Corporation (down 7.31% to Rs 350.35) edged lower. Reliance Industries (down 3.78% to Rs 2147.95) and ONGC (down 6.82% to Rs 874.50) also edged lower.

Banking stocks plummeted on concerns the Reserve Bank may hike interest rates to rein in inflation which is at its highest level in nearly four years. HDFC Bank (down 5.54% to Rs 1168.95), State Bank of India (down 4.48% to Rs 1276) and ICICI Bank (down 3.98% to Rs 740.15) edged lower.

Power stocks fell. Reliance Infrastructure (down 7.15% to Rs 1022), Reliance Power (down 5.37% to Rs 183.35), PowerGrid Corporation of India (down 5.12% to Rs 82.50), Tata Power Company (down 5.49% to Rs 1205), NTPC (down 3.44% to Rs 159.85) edged lower.

India`s second largest telecom services provider by sales Reliance Communication declined 6.24% to Rs 513.60. Reliance Communication (RCom) and the South African telco MTN will reportedly decide the share swap ratio at which Anil Ambani will transfer his stake in RCom to get stake in MTN. Both the companies have reportedly agreed for the deal, which will result in RCom promoter viz. the Anil Dhirubhai Group (ADAG) emerging as the single-largest shareholder in MTN and the foreign company becoming the holding firm of RCom.

US stocks plunged on Friday, 6 June 2008, marking the Dow`s worst day in 15 months, after the US government said the May 2008 unemployment rate jumped the most in 22 years and oil prices shot to another record, renewing fears that the US economy faces 1970s-style stagflation. The Dow Jones industrial average tanked 394.64 points, or 3.13% to end at 12,209.81, its biggest drop since February 2007. The S&P 500 slid 43.37 points, or 3.09%, to finish the day at 1,360.68. The Nasdaq Composite Index lost 75.38 points, or 2.96 percent, to close at 2,474.56.

FIIs sold shares worth a net Rs 3291.20 core in the first few days of this month, till 5 June 2008. They had dumped stocks worth a net Rs 5011.50 crore in May 2008. Their outflow in calendar 2008 reached Rs 18660.60 crore, till 5 June 2008. There has been heavy buying by domestic funds led by insurance firms in the past few days, but that has failed to stop the slide on the bourses.

Brokerage earnings downgrades of Indian firms/stock prices amid rising input and interest costs for India Inc, high inflation and drying up of global liquidity due to credit crisis remain major concern for the Indian stock market. If inflation remains high, the Reserve Bank of India (RBI) would be forced to hike repo rate – a move that could choke overall growth of the economy. The Indian industry and consumer have already been reeling under high interest rates over the past few months. A further hike in rates would raise interest costs of corporate India and hit bottomline

According to rating agency CRISIL, headline inflation is expected to increase by 95 basis points on account of direct and indirect effects of the fuel price hike. The indirect impact which will be felt over the course of the next few months, it states in a note.

A section of the market is of the view that the central bank may only use the reserve requirement route to tame inflation, fearing any hike in rates would further hurt growth already seen moderating to a still strong 8%-8.5% this fiscal year from 9% in 2007/08. To rein in inflation, in its monetary policy review for 2008-09 on 29 April 2008, the RBI raised cash reserve ratio (CRR) by 25 basis points to 8.25% to suck out excess liquidity in the banking system. RBI often says pass-through of high global oil prices is incomplete in India, complicating policy making.

Another near term trigger for the market will be corporate advance tax payments for the first installment which falls due on 15 June 2008. The income tax law requires a company to 15% the estimated tax liability for the year as advance tax in the first installment. The advance tax payment by the corporate sector will give a cue on Q1 June 2008 results.