Monday 21 January 2008

Indian stocks tumbled, with the benchmark index plunging the most in almost four years, on concern the U.S. will enter a recession and slow global growth and as investors placed funds into an initial public offering.

All 30 stocks on the Bombay Stock Exchange Sensitive Index fell after a sell-off by local investors exacerbated an outflow by foreign funds. Investors bid for more than $190 billion of shares in Reliance Power Ltd.'s IPO last week, equivalent to more than a quarter of the entire market value of the Sensex.

``Its an amalgam of global concerns and because money is stuck in initial public offerings,'' said Rajiv Anand, who manages $4 billion in equity and debt at Standard Chartered Mutual Fund in Mumbai.

The Sensex dropped 1,408.35 points, or 7.4 percent, to 17,605.35, after earlier plunging as much as 10.9 percent. The index had its largest fall since May 17, 2004, and had the steepest move among global benchmarks.

The Sensex has fallen 16 percent from its Jan. 8 record close, wiping $114 billion off stocks, including Reliance Industries Ltd., the nation's biggest company, and State Bank of India, the country's largest by assets.

Reliance Industries, based in Mumbai, declined 255.3 rupees, or 9.1 percent, to 2,544.2, a three-month low. State Bank fell 168.15 rupees, or 7.1 percent, to 2,200.15.

``It is retail investor panic that is setting in,'' said T.S. Harihar, vice president for equity derivatives at Karvy Stock Broking Ltd. ``Nobody is comfortable after such a huge correction from the peak. It started off with recession fears in the U.S. and then consistent selling by foreign investors.''

Slowing Growth

Other markets fell on concern the U.S. will enter a recession and slow global growth. Europe's Dow Jones Stoxx 600 Index fell the most since the Sept. 11 terrorist attacks and sank into a bear market. Hong Kong's Hang Seng Index had its biggest fall in six years.

Today's decline was the biggest single-day drop in India's benchmark since Sonia Gandhi's Congress Party won a general election in May 2004. The Sensex fell as much as 11 percent on May 17, 2004, triggering two trading halts.

While that decline, the index's biggest one-day fall in 12 years, wiped out $25 billion in market value, today's plunge cost investors almost double that, $50 billion, according to data compiled by Bloomberg. In 2004, India was Asia's seventh-biggest equity market, today it's the region's fourth-largest stock market, driven by record purchases from overseas.

Other stocks that fell included ACC Ltd., India's biggest cement maker by capacity, which dropped 137 rupees, or 15.9 percent, to 727.6. Ambuja Cements Ltd., India's fourth-biggest cement maker, fell 4.8 rupees, or 3.6 percent, to 127.15.

Videsh Sanchar Nigam Ltd., a provider of overseas call facilities, dropped 57.95 rupees, or 9 percent, to 583.1.

Buyers to Sellers

Investors based outside India bought $17.2 billion of Indian shares last year as soaring economic growth lured funds. India's economy is poised to expand 9 percent for the third straight year, while the U.S., Europe and Japan slow to less than 3 percent growth.

Overseas investors turned net sellers in the past three days, selling about 66 billion rupees ($1.7 billion) of shares, according to data on the National Stock Exchange's Web site.

DLF Ltd., the nation's biggest developer by market value, slumped 25 percent in the five days since the Reliance Power initial share sale opened.

Reliance Energy Ltd., parent of Reliance Power and India's best performing benchmark stock last year, slumped 28 percent. Both companies are controlled by billionaire Anil Ambani.

Reliance Energy fell 16.4 percent, or 348 rupees, to 1,776.05 rupees today. Tata Power Co. declined 190.6 rupees, or 13.3 percent, to 1,243.35.

Emaar MGF IPO

All 13 industry indexes on the Bombay Stock Exchange fell, dropping by between 5.6 percent and 13.3 percent. Nearly 20 stocks fell for each one that rose, according to data on the exchange's web site.

Still, the sell-off didn't deter Emaar MGF Land Ltd., controlled by the Middle East's biggest real-estate developer by market value, from starting its IPO. The New Delhi-based company is seeking 70.8 billion rupees to buy land and develop projects.

``Emaar would get enough demand to close the issue, but if one expects something like Reliance Power, they would be disappointed,'' said Arun Kejriwal, director at research firm KRIS. ``There's enough money in the system to see the issue through, although the markets are off their peak.''

Reliance Power, which sold out its record Indian initial share sale in less than a minute, attracted orders for 74 times the stock on offer. Ambani is raising funds to build 13 power plants with 28,200 megawatts of generating capacity over five years, a third of India's planned new utility projects.

Trading Halt

The index came within less than a percentage point of triggering the first halt in trading since October 17, when proposals to curb offshore derivatives triggered a slump in markets that ended eight straight weeks of gains by the Sensex. Overseas investors resumed purchases after the regulator's final rules didn't impose additional curbs.

If the Sensex had dropped 10 percent, or 2,025 points, before 1 p.m. today, the Bombay and National Stock Exchanges would have halted trading for one hour, while if it would fallen by 10 percent after 1 p.m. but before 2:30 p.m. it would have halted trading for 30 minutes.

If the benchmark had dropped after 2:30 p.m. the halt would have been triggered at 15 percent instead of 10 percent and markets would have ceased trading for the rest of the day.