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Bloodbath on Dalal Street

It seems the equity markets have run out of gas. After closing down in the week ended January 7, the markets sunk this time. Pharma, IT and PSU stocks lost heavily

It seems the equity markets have run out of gas. After closing down in the week ended January 7, the markets sunk this time--while the 30-stock BSE Sensex dived 3.84 per cent, Nifty matched the fall and plunged 4.19 per cent.

Reeling under a massive selling pressure, the Sensex lost 112 points on the first trading day of the week itself. Even as the software major Infosys came out with better than the expected third quarter numbers, the bloodbath intensified on Wednesday when the Sensex plunged a massive 120 points. Thursday brought some respite, as the index zoomed 118 points. However, the party ended the very next trading day and the index ended the week down 247 points.

Broader indices too lost heavily. While S&P CNX 500 plunged 4.24 per cent, mid-caps too bear the brunt with the CNX Midcap 200 shedding 3.43 per cent.

Among the sectoral indices, pharma stocks seem to have caught a cold. After losing over 5 per cent in the week ended January 7, the BSE Healthcare Index slumped 8.19 per cent this time. Speculation that government might impose excise tax on the maximum retail prices of drugs instead of the prevailing tax on the factory prices hit the health of pharma stocks. Consequently, Ranbaxy Laboratories lost a whopping 10.88 per cent. Cipla and Dr Reddy's Laboratories too shed over 8 per cent each.

Even as Infosys came out with good numbers and also raised its earning guidance for the year ended March 2005, disappointing quarterly results of Mphasis-BFL and concern over the forthcoming company results pulled down the prices of IT stocks. In fact software major Infosys lost 3.40 per cent on the day it declared its good quarterly results. At the end of the week, the BSE IT Index closed down 4.31 per cent with Mphasis-BFL losing over 8 per cent.

The scene was no different at other sectoral counters. While BSE FMCG Index lost 2.27 per cent, BSE Bankex shed 3.04 per cent. PSU stocks too lost heavily as the BSE PSU Index slumped 4.77 per cent over the week.

The prevailing negative sentiments in the markets is a product of high positions taken up by investors during the recent rally that they are now offloading. Some unwanted news also contributed to the fall. On Wednesday, RBI Governor Y.V. Reddy had suggested steps like ceiling and taxes on FII inflows. This created a panic in the markets and Sensex fell sharply. Later, Finance Minister P. Chidambaram had to come out with a clarification. SEBI chairman G.N. Bajpai too said on Thursday that there was no reason for changing policy norms for FIIs.

However, these statements seem to have not satisfied the FIIs--they turned net sellers after a gap of nearly 20 weeks. FIIs pulled out Rs 373 crore over the week. Domestic mutual funds, though, supported the markets and pumped in nearly 260 crore.

The combined daily average turnover on both exchanges fell 11.22 per cent to Rs 7,405 crore in the week ended January 14.

Outlook
Profit booking may continue to drag the equity markets in days to come. Much would depend on the third quarter company results. Markets may have lost the steam for now, but good results may provide the fuel for further rally.