BSE Sensex tumbles to lowest close since mid-2006

By Sumeet Chatterjee

BANGALORE (Reuters) – The BSE Sensex shed 5.7 percent on Friday to its lowest close since June 2006, collapsing in afternoon trade as fears of a looming sharp global economic slowdown kept investors wary of risky assets.

The selloff started after U.S. index futures fell more than 2 percent indicating a sharply lower open on Wall Street, which also led to European stocks paring their gains.

"The pain is going to be there for a long, long time," said Daljit Kohli, head of research at Emkay Global Financial Service.

"The risk aversion has gone up significantly on growing global as well as local headwinds."

Heavy selling by foreign funds as the global financial crisis deepened and cuts in guidance by companies added to the gloomy outlook, traders said.

Satyam Computer Services cut its revenue guidance as technology spending was hit by the global financial turmoil, one week after bigger rival Infosys Technologies lowered its forecast.

The 30-share BSE index ended down 5.73 percent, or 606.14 points, at 9,975.35, its lowest close since June 20, 2006. All the index components closed in the red, with 20 stocks falling more than 5 percent.

The benchmark, which has lost more than half its value this year, had risen 1.9 percent in early trade before tumbling as much as 6.3 percent in the afternoon.

HSBC said in a quarterly India equities review that global risk aversion was likely to be a major hurdle for Indian markets.

"We would expect markets to pick up when there are signs that growth in India is holding up well. This may not happen in the next 3-4 quarters," it said.

The BSE index, which fell below 10,000 for the first time since mid-2006, shed 5.2 percent on the week, extending its run of losses to a fourth week in a row as the world's worst financial crisis in 80 years rattled investors.

The Indian market looked reasonably valued, HSBC said, adding it did not believe stocks had reached "rock bottom".

Foreign funds have sold a net $11.3 billion worth of Indian shares this year, including $2 billion so far in October, compared with record inflows of $17.4 billion in 2007.

Energy group Reliance Industries, India's most valuable listed firm, ended down 6.6 percent at 1,305.25 rupees after sinking to 1,290 during trade, its lowest since March 2007, on selling by foreign funds, traders said.

Bank shares fell on weakened sentiment after Credit Suisse cut its rating on HDFC Bank, which said on Thursday loan growth was showing signs of softening after posting a 43.5 percent jump in quarterly profit. HDFC Bank dropped 5.8 percent to 1,024.05 rupees.

No. 2 lender ICICI Bank fell 5.6 percent to 391.70 rupees, while leader State Bank of India lost 8.4 percent to 1,413.95 rupees. The sector index dropped 5.5 percent.

Shares in Satyam ended down 2.6 percent at 265.95 rupees, after lowering the outlook for the full year. Bigger outsourcing rival Infosys, which had cuts its forecast last week, fell 5.1percent to 1,202.55 rupees.

Sector leader Tata Consultancy, which reports next week, closed 8.3 percent lower at 454.15 rupees.

In the broader market, losers beat gainers 3:1 on volume of 248 million shares.

The 50-share NSE index fell 5.96 percent to 3,074.35.

STOCKS THAT MOVED

* Tata Steel dropped nearly 8 percent to 248.20 rupees after saying its Corus unit would cut steel production by up to a fifth or 1 million tonnes over the next three months due to slowing demand.

* Top mobile operator Bharti Airtel ended down 7.5 percent at 676.80 rupees and rival Reliance Communications tumbled 9.6 percent to 233.95 rupees on fears forex

losses may lead to muted quarterly profit growth for telecoms.

MAIN TOP 3 BY VOLUME

* Jaiprakash Associates on 9.2 million shares

* Reliance Natural Resources on 6.8 million shares

* Chambal Fertilisers on 6.4 million