Sensex drops 240 points to its lowest close since Dec. 8, worries over corporate earnings deepen

The 30-share prime index opened higher at 9638.83 and touched the day's high of 9706.38 during early morning trade but failed to maintain its rally, slipping to a low of 9294.98 as the day proceeded. However, decline in inflation rate to a new 9-month low sparked hopes of another round of rate cuts and helped the market barometer trim its losses before close of trade.

Following Friday's decline, the benchmark index is down about 54.7 percent this year, making it one of the worst performing markets in Asia.

Twenty-five components closed in the red. The day's top villains were private sector utility major Reliance Infrastructure and real estate giant DLF, which plunged 6.10 percent and 5.97 percent to Rs.542.30 and Rs.274.4 respectively.

Technology outsourcers Infosys Technologies, Wipro and TCS tumbled 5.33 percent, 2.30 percent and 1.24 percent respectively on growing concerns that global economic slowdown would prompt their clients to cut down on IT budgets.

Financial stocks ICICI Bank, State Bank of India and HDFC Bank declined 5.17 percent, 3.28 percent and 1.38 percent respectively.

Auto majors Mahindra & Mahindra and Tata Motors slipped 4.65 percent and 2.54 percent respectively on worries that demand slowdown would impact their earnings.

Among blue-chip metal stocks aluminium makers Hindalco Industries and Sterlite Industries dropped 4.05 percent and 2.98 percent respectively while world's sixth largest steel producer Tata Steel eased 2.74 percent.

Other major losers were Jaiprakash Associates (down 3.98 percent), ONGC (down 3.96 percent) and BHEL (down 3.86 percent).

Market leader in India's auto industry, Maruti Suzuki led the gainers pack, soaring 1.68 percent to close at Rs.510.75. Other gainers were Tata Power (up 0.50 percent), Satyam Computer Services (up 0.41 percent), Ranbaxy Laboratories (up 0.30 percent) and Grasim Industries (up 0.28 percent).

Among the sectoral indices, all except Healthcare (up 0.50 percent) closed in the red. The worst performers were IT (down 3.92 percent), Realty (down 3.82 percent) and Consumer Durables (down 3.58 percent).

The BSE Midcap and Smallcap indexes fell 1.24 percent and 1.43 percent to close at 3106.68 and 3548.54 respectively.

The market breadth was overall negative as 1597 losers outpaced 866 gainers and 69 closed unchanged.

Elsewhere, the broader 50-share S&P CNX Nifty index of the National Stock Exchange (NSE) closed 2.04 percent or 59.60 points down at 2857.25.

Government data released Friday showed that India's annualized inflation rate has fallen to a new 9-month low level of 6.61 percent, triggering hopes that it will give room to the central bank to push for a cut in key interest rates that will facilitate corporate borrowings and boost consumer spending.

However, optimism was outweighed by concerns of poor quarterly results due next month even as government data showed that advance tax paid by India Inc. had declined 22 percent to about Rs.42,600 crore in the quarter ending December over the corresponding period last year.

A growing war hysteria between neighbors India and Pakistan over Mumbai terrorist attacks in November also dampened market sentiments.

"On such a day, any bad news can ruin the way the market progresses. There was just no participation at all," said K.K. Mital, head of portfolio managed services at Globe Capital.

"There was fear amongst traders due to the war-like situation with Pakistan. FIIs (foreign institutional investors) who had stopped selling in equities for the past one month are now booking profits in small pockets. This is putting pressure on the indices. Today was the first day of new F&O series and normally we see build-up of long positions. But gradual fall in the Sensex indicates that some FIIs were lightening their portfolios," said Anita Gandhi, head-institutional business at Arihant Capital.

"The Q3 results are not going to be so good although the market has discounted it. Investors are more concerned about the liquidity situation of the companies, than the profitability. The situation is still very fluid," said Ajay Parmar, head, institutional research at Emkay Global Financial Services.

Foreign funds were conspicuous by their lack of participation this week largely due to the holiday season overseas and traders said the outlook for next week would depend upon how quickly the government announces another economic stimulus package and when the Reserve Bank would cut rates.

Elsewhere in Asia, markets in Japan and Taiwan closed in the green while those in China, South Korea and Singapore closed in the red.