Large investors seem to have come back from the holidays in a mood to sell. The Sensex has lost 869 points in four days and may go down further by 1,000 points
Although the year and the week began with the opening gap of 112 points on the Sensex, suggesting that the market will continue with the rally that began on 10th December 2010, 3rd January was the only day in this week when the market ended positive. It seems that the large investors came back from the holidays in a mood to sell. So, while on Monday the market was up, the next four days saw relentless selling pressure. Beginning 4th January 2011 till today, the Sensex has lost 869 points, the bears finishing off in style with a 493-point loss on Friday, the last day of the week.
The big selling is coming from foreign institutional investors. They broke the trend of continuous buying between 24th December 2010 and 4th January 2011 (net inflow Rs4,694.25 crore) by turning massive sellers for the next three days. Throughout this period, from 24th December till 6th January, domestic institutions were net sellers on each day, (net outflow Rs2,871 crore).
Today, the Sensex fell 493 points, to a 16-day low of 19,691.81 (the Nifty fell 143.65 points), easily breaking multiple supports along the way. The next support is at 19,500 (Nifty 5,850), but it is unlikely that this would hold. The last time when the market went down, the Sensex lost 2,000 points. We have lost 1,000 points so far and more losses are in store.
On the first day of the week, the Indian market opened with smart gains, touching the day's high in initial trade. However, range-bound trade amid bouts of profit booking at higher levels resulted in a tepid close in the green. The market opened in the green on Tuesday, tracking the Asian markets. The Sensex and the Nifty touched their intra-day highs in early trade, but soon slipped below the neutral line, as investors resorted to profit booking.
The absence of any major triggers and a sell-off by institutional investors resulted in the key indices falling on Wednesday. Profit-taking, along with a steep rise in the weekly food inflation numbers, kept the indices range-bound and they closed lower for a third day on Thursday.
Today, the indices slid below their crucial levels in late morning trade. Analysts attributed the trend to concerns over the sharp rise in food inflation. There was no respite and the market continued its southward journey and ended the session with a deep cut.
Overall, the market tumbled 4% during the week, with the Sensex losing 817.28 points and the Nifty declining by 229.90 points.
Tata Motors (up 2%) and Reliance Industries (up 1%) were the only gainers on the Sensex during the week. Bajaj Auto (down 15%), Tata Motors (down 9%) and ICICI Bank (down 8%) were the major decliners.
All sectoral indices ended in the red with the BSE Auto, BSE Realty (down 7% each) and BSE Bankex (down 6%) ending as the top losers.
The seasonally adjusted HSBC Purchasing Managers' Index (PMI)-a headline index designed to measure the overall health of the manufacturing sector-stood at 56.7 in December, slightly lower than the November reading of 58.4. The latest number pointed to a marked improvement in business conditions in the manufacturing sector. While the rate of growth slowed, it remained above the long-run series average.
December data signalled a marked rise in new business received by manufacturers in India. However, the latest expansion in new order volumes was slightly weaker than in the previous survey period. Growth of new business received from overseas markets also eased marginally at the end of 2010, but remained strong and comfortably above the historical trend.
India's exports in November rose by 26.5% to $18.8 billion compared to $14.9 billion in the corresponding month a year ago, and the government is confident that outbound shipments will touch $215 billion this fiscal. Imports grew by 11.2% in November to $27.7 billion, while the trade imbalance for the month was $8.9 billion.
During the April-November 2010 period, outbound shipments were worth $140.2 billion compared to $110.6 billion in the previous corresponding period, while imports stood at $221.9 billion in the period, against $179 billion in the corresponding period in the year before. The trade deficit stood at $81.6 billion during April-November this fiscal.
India's service sector growth declined in December from a four-month high in the previous month, according to the HSBC Markit Business Activity Index, based on a survey of nearly 400 companies. The index fell to 57.7 in December from 60.1 in November, its strongest reading since July 2010. The December reading marked the 20th consecutive month that the key index of services in Asia's third-largest economy has been above the 50 mark.
Soaring vegetable prices led to a sharp rise in food inflation at 18.32% for the week ended 25th December, from 14.44% in the previous week. This has set off speculation that the Reserve Bank of India (RBI) could step in by tightening monetary policy to check further escalation of commodity costs. The number is close to the high of 19.90% a year ago.
On the global front, manufacturing purchase manufacturers' indexes (PMIs) for December indicated that the rate of expansion in the global manufacturing sector is accelerating. On the flip side, France, India, China, Greece and Australia reported weaker growth.
In the Eurozone, the manufacturing sectors in France and Germany continue to be robust, while Ireland, Italy and Spain surprised on the upside. The manufacturing sector in the UK accelerated to a very buoyant 58.3. The US manufacturing sector grew in December for the 17th straight month. The Institute for Supply Management's (ISM) purchasing managers' index rose to 57 from 56.6 in November, slightly below analysts' expectations.
In Asia, Japan's PMI improved slightly but the manufacturing sector remains in the grip of a recession. The acceleration in the tigers in Asia-China and India-has moderated somewhat, while growth in Taiwan is accelerating. Emerging Europe continues be robust.
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