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RBI moves, FII sales pull Sensex down

For the last seven consecutive trading days, the bourses have been on a downslide. With today's 272-point plunge, the Sensex has sunk below the 4200-level to 4191 points.

Absence of buying from foreign institutional investors, political uncertainty, a weak rupee and the hike in interest rates have combined to pull the markets down.

Sentiment has turned bearish and market players advise a wait-and-watch strategy.

Panic in the market was building up over the last week with continuous selling by foreign institutional investors and domestic mutual funds. The Reserve Bank of India's move to hike Bank Rate by one per cent and cash reserve ratio by 50 basis points only added to the panic. The RBI hiked the interest rates to provide support to the falling rupee. The rupee crashed from Rs 44.60 levels to Rs 45 levels against the dollar last week. The falling US markets on Friday added fuel to the fire.

During the last week, FIIs were net sellers to the tune of Rs 9.2 billion. For July, FIIs have been net sellers to the extent of Rs 13 billion. The Sensex ended the week on a very weak note ending the week down by nearly 9 per cent at 4,463.66.

The governmental situation is also in a flux with three Shiv Sena ministers resigning from the Centre, creating political instability which also affected market sentiment.

These factors together pricked the speculative bubble that had built up over the last one month.

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