Sovereign woes return; wobbly Ireland hits sensex

Foreign institutional investors (FIIs) were net sellers — albeit very marginally — for the first time this month and second time in over fifty sessions on Thursday, even as worries rose over Ireland’s debt and Korea went into a sell-off sparked by expiry of option contracts.

The last-leg edginess meant the Sensex wound down 286.62 points or 1.37% to close at 20589.90, while the Nifty closed at 6194.25.

The Sensex has gained 2617.97 points or 14.56% since the beginning of September.

FIIs net-sold (more sales than purchases) equities worth Rs60.42 crore, after being net buyers by Rs16,361.67 crore this month, according to provisional figures from the exchanges.

European Union member states are checking to see if Ireland needs financial aid from Europe’s 750 billion-euro rescue fund, the Handelsblatt newspaper reported, citing unidentified government officials.

The rise in the yields on Irish government bonds are cause for concern, unidentified officials in Berlin told the newspaper. Ireland has not yet requested any aid, the officials told Handelsblatt. Ireland could be helped very quicky if necessary, the newspaper said.

Irish and international banks’ loan losses in the country may total at least 85 billion euros ($117 billion), central bank governor Patrick Honohan said in Dublin Wednesday.

“Concern seems to be mainly targeted at Ireland and its banks and everything looks like it’s going against them at the moment,” said Simon Adamson, a bank credit analyst at CreditSights Inc. in London. “Whatever they say to reassure people, it doesn’t seem to be having any effect.”

“The market may push the Irish government into doing something to relieve the pressure,” said Adamson at CreditSights. “It’s very hard to resist this sort of pressure.”

The Kospi was clobbered by a large sell-off on the day of expiry of its options contracts, which give the holders the right but not the obligation to buy or sell securities at a certain price for a certain period.

The Korean index was down 2.7% at the end of trade on Thursday.

The selling happened at the very fag end and is said to have been
following sudden heavy selling by foreign investors, which also had an effect on India.

“There was panic selling by participants because of what happened to Kospi in last five minutes of trading there. The selling was mainly in the large caps in cash market, which has led to Nifty futures trading at premium of 35-40 points to spot market,” said Siddharth Bhamre, head of derivatives at Angel Broking.

Some large FIIs in India also hit the sell button at the start of trade on Thursday, causing markets to slip.

All sectoral indices on the Bombay Stock Exchange ended in the red. The Realty Index was the worst hit, dropping 3.15%. This was followed by Oil and Gas which fell 1.84%.

Sentiment also remained weak as fears over the European issue resurfaced. Ireland’s bond yields or the amount of interest that would be given to bond holders hit a high of 8.915%, or an astounding 650 basis points above German bunds, suggesting the country is seen as increasingly risky.

“The concerns on Eurozone are re-emerging. It’s not that the events in Ireland were not anticipated, but people are hoping that some arrangements would be made to bail out the country,” said one market participant, not wishing to be named.

Thursday’s fall apart, the market is expected to remain relatively stable, according to experts.

“We expect that markets will remain range-bound with the possibility of movement of 5% either way. It should stay between 5900-6300 on the Nifty,” said Amit Khurana, head of institutional equity at Mangal Keshav Securities.

“At the moment, Nifty 6150-6180 seems to be a good support and we are advising our clients to go long on Nifty in case of corrections. The markets on the other hand would see resistance at their all time highs of around 6350,” said Angel’s Bhamre.