The Indian equity markets lost 3.5% in the week to Friday, dashing investors? hopes of a rally in December. The markets had shrugged off three weeks of decline last week with a 7% rise. However, both the benchmark equity indices, the Sensex and the Nifty, lost 3.5% this week with big sell-offs in the last two trading sessions of the week.
The Sensex fell 274.78 points to 16,213.46 on Friday. The decline was driven by a weak opening in all Asian markets after the European Central Bank (ECB) failed to meet market expectations of an increase in its bond purchases for boosting investors? confidence. The Sensex lost close to 634 points to end the week at 16,213.46 points and the Nifty shed about 172 points, closing below the 4,900-mark for the first time in six trading sessions.
The euro zone summit that started on Thursday hopes to tackle the ongoing European debt crisis. European leaders have decided so far to add 200 billion euros ($267 billion) to their crisis-fighting fund and have tightened the anti-deficit rules. While announcing ECB?s decision to cut the key interest rate by 25 basis points to 1%, the ECB president said the central bank?s bond purchase programme is ?neither eternal nor infinite.?Amidst the ongoing summit, the European markets opened in red but progressed upwards within hours of openings.? At 6 pm, all European indices?the German Dax, UK?s FTSE and the French CAC-40? were trading with 1-2% gains.
The Indian market did trend up about 1.5% from day?s low in the last one hour of trade but failed to hold on to the intra-day gains also as the finance ministry cut India?s growth forecast for the current fiscal year. A mid-year review of the economy tabled by the finance minister in Parliament showed that the economy is likely to grow by between 7.25% and 7.75% in the fiscal year ending March, sharply lower than the original estimate of 9%.
Thursday?s 2.3% fall in the Sensex was a reaction to the government?s U-turn on the announced reforms on FDI in the retail sector.
RIL, the index heavyweight, lost 3% to end the session at R755.7. Nomura downgraded the stock to Neutral, citing declining refining margins and diminishing exploration and production possibilities. ?Index constituents like Bajaj Auto, Mahindra & Mahindra, Sterlite Industries, BHEL and Tata Power also lost more than 3% during Friday?s trade while the SAIL lost more than 5% to emerge as the biggest losers among the Nifty constituents.
Following a decline, market volatility rose to its highest level in 8 trading sessions days. India VIX, the gauge of market volatility gained more than 20% during the week to close at 29.53 on Friday. FIIs added shares worth R195.2 crore. They still continue to be net sellers of equities worth close to $50 million. Domestic institutions bought shares worth R115 crore on Friday and have picked up R25,831 crore worth of shares in 2011 so far.
