Investors’ wealth — market capitalisation — took a severe hit in the selling avalanche. Market cap fell by Rs 3,07,000 crore to Rs 66.25 lakh crore during the day, making it one of the steepest declines in the recent past. All the sectoral indices were in the red with oil & gas and realty indices getting the worst hit. While small-caps and mid-cap stocks also sank, Ranbaxy Laboratories and cement pivotals survived the fall.

The 30-share BSE Sensex closed 687 points, or 3.49 per cent lower at 19,013.70, its fourth largest fall ever in terms of absolute points.

“Optimism about making huge profits in IPOs is prompting retail investors to withdraw money from the secondary market and invest in the primary market. Fears of recession in the US are also making investors, especially foreign institutional investors, withdraw from riskier assets,” said Ramdeo Agarwal, managing director of Motilal Oswal Securities.

It was a bad week for investors as a host of negative news from US recession to domestic slowdown hit the market sentiment. The mega IPO of Reliance Power added to the selling pressure as investors sold stocks to invest. The IPO so far has got bids worth over Rs 7,00,000 crore. With the market coming under fire throughout the week, the BSE Sensex lost 8.71 per cent, 1814 points, during the week ended on Friday.

Unnerving the investor community, annual inflation, based on the wholesale price index (WPI), moved up 3.79 per cent in the week ended January 5 as compared with 3.5 per cent in the week ended December 29, 2007.

“The impending slowdown in the Indian economy is adding to the bearishness,” said a fund manager. C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, has indicated that a deep recession in developed economies would have an adverse impact on the Indian economy. Global rating agency Moody’s has said that India’s economy should expand 8 per cent in 2008, slower than 8.8 per cent last year as tight monetary conditions dampen loan demand and creaky infrastructure hobbles growth. On top of this, the government is getting ready to increase fuel prices, which will push inflation further up.

Analysts are worried about the global financial sector. The current financial sector slump will continue through 2008 and into 2009, testing bank creditworthiness, said Standard & Poor’s ratings services. “The downturn is unsettling because it comes in the context of relatively strong global economic growth and historically low corporate default rates,” said Standard & Poor’s credit analyst Scott Bugie.

While Indian markets tanked, other Asian markets mostly recovered from early plunges. In Tokyo, the region’s biggest market, the benchmark Nikkei 225 stock index rose 0.6 per cent to 13,861.29, reversing an opening 3 per cent plunge in the wake of an overnight drop on Wall Street. Hong Kong’s benchmark index rose 0.4 per cent to 25,210.87 after plummeting as much as 3.7 per cent in morning trade.

Worries about a slowdown in the US economy — a major export market — have dragged down Asian markets, including Indian market, since the start of the year.

Why bears are roaring back?

• Investors sell stocks to apply for Reliance IPO

• PM’s council hints at lower growth this year

• Inflation rises to 3.79% as per latest figures

• Hike in fuel prices to put pressure on inflation

• US economy sliding into recession

BSE Sectoral Indices

AUTO Escorts -8.7%; TVS Motors -6.2%

BANKEX Kotak Bank -10.5%; Canara Bank -9.6%

CD Gitanjali Gems -9.3%; Titan Ind. -5.9%

CG Kirloskar Oil Engines -9.9%; Praj Ind. -8.5%

FMCG Tata Tea -6.4%; United Breweries -3.6%

HC Divi's Lab. -8.3%; Bilcare -8.2%

IT Aptech -9.5%; NIIT Tech. -7.0%

METAL Jindal steel -9.4%; Ispat Ind. -7.2%

OIL&GAS Essar Oil -8.1%; Indian Oil -7.6%

POWER CESC -7.1%; GMR Infrstr. -6.6%

PSU IDBI -10.2%; Canara Bank -9.6%

REALTY Ansal Prop. & Infrstr. -12.7%; Peninsula Land -11.5%

TECk Adlabs Films -10.2%; Wire & Wireless -10.0%