Auto stocks lead Sensex plunge

The decline in inflation and firm foreign cues could not prevent the benchmark Sensex from clocking its steepest fall since July 18 in absolute terms a whopping 390 points. With automakers leading the drop in the last hour of trade,Indian stocks fell 2.45 per cent on Thursday on institutional selling. The 30-share BSE Sensex ended down 389.80 points at 15,514.03. The 50-share NSE Nifty index fell 2.3 per cent to 4,585.50.

Brokers attributed the steep slide to sudden selling by foreign institutional investors (FIIs),who pulled out Rs 690.53 crore on Wednesday and Rs 371 crore on Thursday,provisional data showed. The below normal monsoon was another cause of concern,they added. Big investors booked profits in the auto sector after it jumped 33.5 per cent over the past three weeks,outperforming a near 19 per cent rally in the main index during the period. A decline on Wall Street overnight as downbeat US data cast a shadow over recent economic optimism also weighed on investor confidence,analysts said.

A section of the market players were of a view that many institutional investors will move from secondary markets,where valuations are slightly overstretched to primary markets,where investors go for quality stocks at month watering price. The frontline stocks are expected to show more volatility in coming days, said BNP Paribas Financial Services research head Alex Mathews.

The rally over the previous three weeks was driven by strong domestic and global corporate earnings. Cars and utility vehicle sales grew about a third in July,their best performance in a year,thanks to new launches and easier availability of finance,raising hopes for a strong pick up in the coming months. But worries that stocks are pricey have emerged as the main index has risen 93 per cent from a 2009 low in March and 61 per cent this year.