India's main index sheds 7.4% in a day

New Delhi: Indian stocks tumbled, with the benchmark index plunging the most in almost four years, on concern the US 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 (Sensex) fell after a sell-off by local investors exacerbated an outflow by foreign funds.

Investors are selling in part to raise funds and buy shares of Reliance Power. Investors bid for more than $190 billion of shares in the 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 per cent, to 17,605.35 at the 3.30pm local time close in Mumbai, after earlier plunging as much as 10.9 per cent. The index had its largest fall since May 17, 2004, and had the steepest move among global benchmarks.

The Sensex has fallen 16 per cent from its January 8 record close, wiping $114 billion off the market value of stocks including Reliance Industries, the nation's biggest company, and Reliance Energy.

Huge correction

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

Other markets in Asia fell on concern the US will enter a recession and slow global growth. Japan's Nikkei 225 Stock Average dropped to its lowest since October 2005, while Hong Kong's Hang Seng Index plunged the most since the September 2001 attacks.

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

Lost value

While that decline, the index's biggest one-day fall in 12 years, wiped out $25 billion in market value, on Monday's plunge cost investors almost double that, $50 billion, according to data on Bloomberg.

In 2004, India was Asia's seventh-biggest equity market, yesterday it's the region's fourth-largest stock market, driven by record purchases from overseas.

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 per cent for a third straight year, while the US, Europe and Japan slow to less than 9 per cent growth.

Overseas investors turned net sellers in the past three days, selling about Rs66 billion ($1.7 billion) of shares, according to data on the National Stock Exchange's website.

DLF, the nation's biggest developer by market value, has slumped 25 per cent in five days since the Reliance Power share sale opened.

Reliance Energy, parent of the power company and India's best performing benchmark stock last year, has slumped 28 per cent. Both companies are controlled by billionaire Anil Ambani.

Emaar MGF

Still, the sell-off didn't deter Emaar MGF Land, controlled by the Middle East's biggest real estate developer by market value, from starting its IPO on Monday. The New Delhi- based company is seeking Rs70.8 billion 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.

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 per cent, or 2,025 points, before 1pm, the Bombay and National Stock Exchanges would have halted trading for one hour, while if it would fallen by 10 per cent after 1 pm but before 2:30pm 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 per cent instead of 10 per cent, and markets would have ceased trading for the rest of the day.

Rupee: Negative impact

India's rupee declined to the weakest in more than a month on concern the stock market losses will spur overseas investors to increase sales of local equities.

"If the decline in the Sensex leads to significant outflows of foreign capital, we can surely expect a negative impact on the rupee,'' said Mohan Shenoi, treasurer at Kotak Mahindra Bank Ltd. in Mumbai.

The rupee fell 0.6 per cent to 39.555 per dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg.