News Hour-Sensex plunges 1.6% on profit booking, risk aversion

MUMBAI: The Sensex fell 1.6 per cent on Monday, marking its biggest percentage fall since mid-May, asinvestors booked profits in recently outperforming sectors such as banks after global risk aversion hammered Asian shares. 

Investors in India are facing the prospect of a double whammy, as the euro zone debt crisis looks set to continue given growing worries Spain will need a sovereign bailout, while the global economy continues to show signs of weakness. 

At home, investors are starting to grow concerned the government may not be able to deliver substantial policy reforms after last week's presidential elections, threatening to undo the strong gains in Indian stocks seen last month. 

Retail stocks such as Pantaloon slumped on Monday following media reports some government coalition members are opposing allowing foreign direct investment into multi-brand outlets. 

"In my view, time is up, and now nothing concrete can be expected from this government for a long time," said Vijay Kedia, director at private wealth management firm Kedia Securities. 

"India now needs fast and constant changes in policy in tandem with global changing scenario, which this government will not be able to implement till next election," he added, referring to general elections in 2014. 

The Sensex ended at 16,877.35, down 281.09 points or 1.64 per cent. It touched a high of 17,047.73 and a low of 16,849.28 in trade today. 

The 50-share NSE Nifty closed at 5,117.95, down 87.15 points or 1.67 per cent. It touched a high of 5,164.20 and a low of 5,108.10 in trade today. 

The Nifty slipped for a second straight day and hit its lowest level since June 26 on the back of weak global cues and on concerns that the government might find it difficult to carry ahead with economic reforms following resistance to FDI in retail from the Samajwadi Party. 

According to analysts, the market is likely to remain rangebound with a negative bias in the short term and key trigger for an upmove would be reforms initiation from the government. 

"Indian markets lost about 1.7 per cent on concerns that Spain might become the fourth euro zone member to need a full international bailout after a second region Murcia (after Valentia) indicated that they might need government help. There were also concerns that, there may be resistance to FDI in retail. This may mean that, the government may face further roadblocks to economic reform agenda," said Dipen Shah, Head of PCG (Private Client Group) Research at Kotak Securities.