Weak sentiment prevailed in the market and the indices continue to weaken under all round selling pressure. Operators are getting out of positions built up after the budget as FII's remain in the sidelines. The indices declined to their lowest levels since January losing close to 2 per cent each. Sensex closed at 6635, down a massive 122 points and the Nifty at 2061, down 35 points.

Yesterday, US markets remained weak ahead of a Fed Reserve meeting today to consider interest rate revision. The market is expecting a hike in interest by 0.25 per cent but speculation that the Fed may indicate upward revisions of 0.5 per cent in future is making traders jittery. Dow lost more than half a per cent while NASDAQ managed to recover towards the end of the session and closed on a flat note. Oil declined marginally after ruling firm in morning trades. Indian ADR's had another bad day with ICICI Bank and HDFC Bank among the major losers. Wipro, Tata Motors, MTNL and Satyam all ended with loses. Infosys was the only one to manage a positive closing.

Public sector bank employees went on a nationwide strike today paralysing banking operations. Besides affecting trading volumes in the stock market, the opposition from employees to consolidation and FDI in the banking sector has dampened the market sentiment for banking stocks. Most public sector banks had appreciated significantly on speculation of mergers between smaller banks. Smaller private sector bank stocks had also moved up on expectations of higher FDI.

Infrastructure output index for February is down 0.3 per cent as compared to the same month of last year. Electricity generation, crude oil production and coal output declined even as steel output showed a marginal increase. For the current year till February the infrastructure index was up 4.6 per cent as compared to a growth of 6.5 per cent last year.

There was some positive news for the government as Left parties have decided to support the Patent (Amendment) Bill after its suggestions were accepted. They continue to oppose the legislation on pension fund regulation.

Banks were the major losers as PSU bank stocks were battered down and the bank stock index lost more than 3 per cent. There are unconfirmed reports that the prime minister's office is not in favor of consolidation in the banking sector. SBI lost more than 4 per cent while Punjab National Bank and Oriental Bank of Commerce were the other major losers. The weakness rubbed off to private sector banks like ICICI and HDFC as well.

Among the heavyweights, Reliance lost almost 3 per cent and ONGC more than a per cent.

The Tech pack also closed lower. While Wipro and Satyam lost more than a per cent each, TCS and Infosys were better off losing less than a per cent.

It is interesting that the stocks which managed to close with marginal gains like MTNL, Zee and Dr. Reddy's have been the ones which have underperformed in the rally so far.

Mid-cap action
Mid-caps tumbled on all round selling as traders liquidated leveraged positions. The stocks which had seen large appreciation in the recent past were the major losers.

The big news of the day was, of course, the deal between UB group and Dubai-based Jumbo group of the Chabrias to sell a majority stake in Shaw Wallace to the former at Rs325 per share. The UB group has revised the open offer price, which is what retail shareholders would get for Shaw Wallace, to Rs260 from Rs250. The premium they paid to Jumbo group is for a no-competition clause for the next five years. The UB group says it plans to consolidate all its spirits businesses under a single entity to be called UB spirits. This entity would be the second largest spirits player in the world behind Diageo, in volume terms.

Investors considering fresh investment in the UB group stocks should keep in mind the fact that profitability of these companies are nothing great to write about and there are many issues regarding corporate governance. The group's finances would be stretched thin for financing this deal and its proposed domestic airline, unless it can get a strategic investor to buy a substantial stake. Even though the stocks are undervalued when compared to international liquor stocks, investors may not rush in to buy as there are concerns on profitability. It may take some time for UB group to improve its profitability and attract better valuations.

Mid-size shipping company, Varun Shipping, made a preferential offer to Singapore-based investment company, Matterhorn. The stock jumped more than 3 per cent in morning trades.

Bhushan Steels made a preferential issue to private investor Rakesh Jhunjhunwala at a discount to the market price. The company also plans to raise funds from abroad to finance expansion plans.

Opto Circuits is another company which is joining the GDR bandwagon to raise funds. The stock rose more than 3 per cent on the news.

Adlabs was one of the few winners in the mid-cap space on the back of a positive research from a major domestic brokerage. The company is engaged in digital conversion and distribution of movies.

Even though the sentiment has been weak for almost a week now, today's near panic feeling was absent from the market since January. The indices have crashed through all psychological support levels and it will be difficult for the market to stage a come back for the rest of the month. A short relief rally can be expected anytime now.

Other articles by Rex Mathew

List of general reports on markets

List of general reports on finance