Sensex falls 150 points on worries taper may check foreign flows

The BSE Sensex slipped on Thursday, falling for a seventh session out of eight, as blue chips such as ICICI Bank declined after the U.S. Federal Reserve announced the start of its tapering, raising concerns about foreign selling.

The fall came even as global shares took the Fed’s decision to trim its bond buying by $10 billion to $75 billion a month largely in their stride while the finance minister said the country is better prepared to deal with US tapering now.

Overseas investors are net buyers of more than $18 billion worth of shares so far this year, the biggest in emerging Asia, according to Deutsche Bank data earlier this month, which also makes the country vulnerable to potential selling.

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Investors say the prospect of rate hikes from the Reserve Bank of India could also weigh on shares, despite the relief rally on Wednesday after the central bank surprised investors by keeping monetary policy on hold.

Shares have thus steadily retreated from record highs hit on December 9, with the BSE Sensex 3.7 percent away from an all-time high of 21,483.94.

“One of the big questions post Fed’s move is whether liquidity will continue flowing to emerging markets like India or not. If rates go up in U.S. then it will be risk for EMs,” said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.

The benchmark BSE Sensex fell 0.73 percent, or 151.24 points, to end at 20,708.62,

The broader Nifty declined 0.81 percent, or 50.50 points, to end at 6,166.65, closing below the psychologically important 6,200 level.

However, NSE’s volatility index, or the domestic equivalent of the VIX fear gauge, marked its lowest level since May 7 intraday after the RBI and Fed’s moves pointing towards some bets on stability in the markets soon.

Among blue chips, rate sensitive stocks especially banks led the fall on possible risk aversion on U.S. Federal Reserve tapering and potential hike in interest rates in the near term if inflation fails to cool down.

In private banks, ICICI Bank fell 3 percent, HDFC Bank ended 2.1 percent lower, while Kotak Mahindra Bank lost 3.8 percent.

State owned banks which outperformed their private sector peers on Wednesday on expectations of bond portfolio gains after RBI kept interest rates unchanged also reversed gains.

State Bank of India Ltd fell 1.8 percent while Punjab National Bank ended 1.7 percent lower.

Among non-banking lenders, Housing Development Finance Corp ended down 2.8 percent, while IDFC fell 2.2 percent.

In auto stocks, Hero MotoCorp fell 1.9 percent while Mahindra and Mahindra lost 1 percent.

However among stocks that gained, software service exporters rose as a strengthening dollar on the back of the Fed taper could weaken the rupee, improving margins from overseas.

Tata Consultancy Services Ltd gained 1.3 percent, while Infosys rose 1.6 percent after earlier touching a record high of 3,544.95 rupees.

Wockhardt surged 10.1 percent, marking its third consecutive day of gains, on listing plans of unit Wockhardt Bio on the Berne Stock Exchange in Switzerland.

Reuters