Mumbai: Key equity benchmarks plunged 2 per cent on Monday, the biggest single day fall in more than a year, with brokers attributing the crash to profit taking after the recent run up. Signs of a recovery in the US economy also made investors jittery as they feel a portion of global liquidity flows could ease as the Federal Reserve starts tightening its monetary policy.
The BSE Sensex closed at 19691.67, down 430 points over the previous close. The Nifty closed at 5980.45, down 127 points over the previous close. FMCG, metal and capital goods shares were the worst performers, as investors targeted stocks that had run up the most in the recent rally.
ITC topped the list of frontline losers, shedding over 5 per cent. Sterlite, GAIL, BHEL, Larsen & Toubroa, Tata Motors, Bharti Airtel and Tata Steel were the other big losers, falling 3-4 per cent.
Economic data released on Monday was a mixed bag with consumer price index-based inflation easing for the second straight month, but trade deficit for April jumping due to higher gold imports.
"We believe this will be a challenging cycle and recovery in growth will be gradual. Moreover, the starting point of the macro stability environment (inflation, current account deficit and high banking sector loan deposit ratio) will still constrain domestic demand from staging a strong recovery," brokerage house Morgan Stanley said in its note to clients.
Sanjeev Prasad of Kotak Institutional Equities is advising clients to book profits in frontline stocks that have outperformed during the recent rally, as he feels valuations are stretched. "I am not very sure whether just global liquidity can continue to rerate the stocks without any great change in their fundamentals. So, unless and until earning numbers start looking up I am not a big believer in chasing multiples just like that," he said in an interview to CNBC-TV18.
FIIs have been buying heavily over the last month, but experts feel the flows could reverse just as easily as they emerged. Among midcap shares, Reliance Communications shares fell around 5 per cent as investors were disappointed with the company's fourth quarter operational performance despite the growth in bottom line.
Elder Pharmaceutical shares crashed 10 per cent with trading in the stock being frozen for want of sellers. The company on Monday said that Ratnakar Bank had sold some of the shares pledged by the promoters with it.