Carnage on Dalal Street; Sensex ends 493 points down

Equity benchmarks got butchered on Friday, led by a sell-off across sectors and a pull-out of some money by foreign institutional investors. Inflation worries due to spike up in commodity prices in international markets, domestic issues (scams) and a likely hike in key rates by the Reserve Bank of India (RBI) in its forthcoming policy meet could be some of the reasons behind this carnage along with shorts build up.

Sudeep Bandyopadhyay, President of Destimoney Securities said there has been a significant pressure building up in the market due to the commodity price movement in the international markets, which was something very serious for Indian economy and Indian markets. "What was happening at the peak of the 2007-08 boom was we had a commodity asset book internationally of about USD 250 billion and today we have an international commodity asset book of about USD 400 billion. So a lot of money is moving into commodities and that's been pushing up the commodity prices. It doesn't augur at all well for India."

"Oil prices, most of the non-agri commodity prices are moving through the roof and Indian economy, inflation in India and consequently the interest rates are all moving up or under pressure. Very clearly the corporate earnings will also be under pressure and I think market somehow is suddenly taking to cognizance this fact and trying to sell. Of course once the selling starts stop loss starts getting hit and markets keep falling down. Pretty much that's what is happening," Sudeep explained.

For one year plus view, however, he is positive on the Indian markets. "We like the domestic pharma sector particularly the midcap pharma stocks like Ipca Laboratories. We also are very positive on auto ancillaries, companies like Exide Industries. We like fertilizer, it has been beaten down and it has got significant potential of turning around in this Financial Year," he said.

Bears have taken charge of the markets in the first week of 2011 itself and have dragged the 50-share NSE Nifty below the 5900 during the day, which could manage to hold during final adjustment of trades to end at 5,904.60, down 143.65 points or 2.38% and the Sensex shed more than 550 points, which settled at 19,691.81, with loss of 492.93 points or 2.44%.

Only one share i.e. IDFC advanced as against 49 shares declined on NSE Nifty. Even all sectoral indices were in red; metal, auto, technology, healthcare, pharma and FMCG cracked the most - down 2-4%. The broader indices too crashed - the BSE Midcap Index was down 2.5% and Smallcap down 2.86%.