Sensex Plunges 5%, Trade Deficit Surges

123jump.com Staff
03 Mar, 2008
New York City

Sensex plunged 5% after the indexes in Asia fell on the persistent worries related to the U.S. economy. India led the declining markets in Asia. Budget provisions also contributed to the nervousness in trading. Separately, trade deficit in January rose sharply $9.3 billion from $2.8 billion a year ago. For the nine month period ending in the month, trade deficit increased to $67 billion from $45 billion a year ago. Realty and banking stocks fell sharply.

[R]11:00AM New York, 9:30PM Mumbai – Sensex plunged 5% after a sharp correction in the U.S. Trade deficit in January rose to $9.8 billion.[/R]

Selling pressure in large and mid cap stocks Monday dragged stocks. The BSE Sensex 30 declined 5.1% or 900.84 to 16,677.88 with 26 shares in the benchmark index declining while the rest advanced.

It was the second largest one-day point and percentage loss. In the broader markets, NSE index lost 5.2% or 270.50.

Reliance Industries, the largest market cap fell 6.3% along with a loss in DLF, Mahindra Lifespace Developers, and ICICI bank.

India’s largest tobacco processor ITC receded the most in three months after the Government increased cigarette taxes. Shares of the Kolkata based company fell 4.5% to 193 rupees, registering its biggest fall since February 11 2007.

Among the BSE stocks, only 396 shares advanced, 2,330 shares declined and 40 stocks remained unchanged.

Budget

The Indian economy is currently witnessing a moderation in growth from a brisk pace last year on an expected slowdown in consumption and weak growth in agriculture.

The budget took fiscal steps to revise the consumption and increase disposable income in the hands of the middle class through lower personal income tax.

Brokerage IDFC-SSKI Securities in a post-budget report has maintained its earnings growth estimates for 30-Sensex firms. It expects 16.5% compounded annual growth rate in earnings for the Sensex 30 index stocks for the period between 2008 and 2010.

The change in tax treatment of the Securities Transaction Tax (STT) in the budget, meanwhile, may impact arbitrage volumes on the bourses. STT will now be treated as ordinary deductible expense against business income. Currently the tax is waived for this transaction. Brokers worried that this may lower liquidity in the market.

In addition, institutional investors are likely to be hit by a hike in short term capital gains tax on sale of shares to 15% from 10%, which amounts to a massive 50% hike in the tax rate. Brokers and traders are likely to take their capital gains before the revised tax becomes effective on April 1st.

Turnover

Daily turnover on the BSE was recorded at 5,090 crore rupees and on the National Stock Exchange was at 12,754 crore rupees.

Essar Oil was the most active stock on the BSE with a turnover of of 257.71 crore rupees followed by Reliance Petroleum with 237.78 crore rupees, Onmobile Global at 234.85 crore rupees, and Reliance Industries at 230.46 crore rupees.

Volumes

In trading volume, Reliance Petroleum recorded the highest of 1.41 crore shares on BSE. Reliance Natural Resources, IFCI, Essar Oil and Nagarjuna Fertilizers and Chemicals were also among the volume leaders.

Trade deficit increases

India''s export growth for January increased for the first time in three months as companies shipped more gems, jewelry and other manufactured goods.

Exports, which account for about 15% of India''s $906 billion economy, rose 20.5% as compared with $13.14 billion in the same period last year.

Announcing the latest figures, the commerce ministry said in a statement on Monday that the January’s gain of 20.5% was faster than December increase of 16%.

Exports are benefiting from stronger shipments of gems, jewelry, oil products and engineering goods, accounting for more than half of India''s exports offsetting a slowdown from other sectors like fabrics and chemicals. Overseas sales for gems and jewelry exports increased 11.1% to $1.7 billion in January from $1.6 billion from a year ago.

During the same period, imports advanced 63.6% in January from a year earlier to $22.5 billion, widening 350% from a year ago to $9.3 billion from $2.8 billion.

Oil imports in January rose 61% to $7.7 billion, while non-oil imports gained 65% to $14.8 billion.

For the April 2007 to January 2008 period of nine months, trade deficit increased to $67 billion from $45 billion in the same period a year ago.

Market Movers

Reliance Industries fell 6.2% to 2,304.75 rupees.

ICICI Bank fell 6.1% at 1,024.45 rupees, State Bank of India lost 8.8% at 1,923.4 rupees, Punjab National Bank was down 9.7% at 545.85 rupees while Bank of India 8.5% at 329.05 rupees.

Suzlon Energy lost 10.4% at 252.05 rupees, Tata Power fell 6.8% at 306.05 rupees. Reliance Energy fell 5.2% at 1,485.55 rupees and Reliance Power was down 4.3% at 412 rupees.

DLF lost 8.4% at 714.70 rupees, Mahindra Lifespace Developers fell 5.9% at 536.7 rupees while Unitech declined 5.5% at 339.50 rupees.

Ashok Leyland fell 1.7% at 36.80 rupees, Mahindra & Mahindra was down 1.2% at 684.25 rupees, Bajaj Auto lost 1.1% at 2,255.50 rupees and Tata Motors declined 1% at 693.15 rupees.

However, Hero Honda Motors gained 1.3% at 774.10 rupees and Maruti Suzuki advanced 0.8% at 874.30 rupees. Auto stocks rose on the expectations that the sales will pick up on lower excise duty.