US Financial Worries Weigh on Equities

MUMBAI: Investor sentiment was marred Monday on worries about the health of the US financial sector after Lehman Brothers became the latest casualty to the mortgage crisis fallout, Merrill agreed to be taken over by Bank of America for $50 billion and troubled insurer American International Group asked the Fed for a lifeline.

With Lehman and Merrill Lynch out of the picture, three of the top five US investment banks have effectively departed the scene in less than six months. Bear Stearns was acquired in a fire sale by JPMorgan in March.

"We are witnessing a turning point in the modern history of the financial system, as three major brokers have now disappeared from the scene. The coming days and weeks will be crucial to the global economic outlook," said Anita Gandhi, head-institutional business at Arihant Capital.

Stock markets in Australia, Singapore and Taiwan fell by around 2 to 4 percent, with shares of many banks suffering bigger losses. Holidays in most major Asian markets, including Tokyo and Hong Kong, kept volumes thin.

The gloom across global markets took its toll on Indian bourses as well, which plunged over 6 per cent intra-day as investors braced for more FII outflows. However, the market recovered lost ground towards the fag end of the session on the back of short covering in battered index heavyweights.

Bombay Stock Exchange's Sensex settled at 13,531.27, down 469.54 points or 3.35 per cent, recovering from the day's low of 13,150.81. The index opened at 13,666.28.

National Stock Exchange's Nifty ended 3.68 per cent or 155.55 points at 4072.90. The index fell to a low of 3955.40 earlier in the day.

"The mood is pessimistic than ever before; even insurance companies that generally come to support the market at times of distress, are not on the buy side. Lehman's exposure in heavyweights like DLF and Unitech sent the BSE Realty Index on a downward spiral," Gandhi added.

The selling spree sent the BSE Midcap and Smallcap indices down 4.49 per cent and 4.93 per cent respectively.

After remaining in the negative terrain for most of the day, Maruti Suzuki (2.8%), HDFC (1.16%), and ACC (0.61%) managed to eke out decent gains.

Reliance Infrastructure (-9.72%), Satyam Computer (-9.45%), Ranbaxy Laboratories (-7.6%), DLF (-7.54%) and ONGC (-6 .01%) were under pressure.

While the fate of the US financial system loomed in investors' minds around the world, initial reports that Hurricane Ike had not severely damaged infrastructure in Texas knocked benchmark oil prices below $100 a barrel. Oil tumbled 6 per cent to $94.83 although traders were cautious as they awaited status reports on more Texas refineries.

The financial turmoil halted US dollar's rise against other currencies, however, there was no respite for the Indian rupee. The Indian currency was down 46.04/05, down 32 paise against the US dollar.