Sensex heavyweight ICICI Bank tumbled over 4 percent in intra-day trade before closing 1.6 percent lower at 851.25 rupees.

Bank of Baroda, which has a total exposure in the UAE of around 100 billion rupees ($2.1 billion), saw its shares plunge about 7 percent before closing 4.6 percent lower at 521.40 rupees.

Other stocks in the banking index which felt the heat were Axis Bank (down 3 percent), Kotak Mahidra Bank (down 2.9 percent), Bank of India (down 3.6 percent) and SBI (down 0.4 percent)

Do you think this sector will see more erosion over the Dubai debt repayment crisis?

Stocks in this sector were under pressure throughout trade, which saw all counters in the bankex, except Canara Bank, closing in the red.

HDFC Bank, another major player, ended down 2.4 percent.

Mid-cap counters like Dena Bank and Vijaya Bank too struggled in trade and ended down 6.5 percent and 5.8 percent respectively. Both stocks were among top losers in the mid-cap index.

The banking index has gained 7.7 percent in November, a tad higher than the benchmark Sensex’s return of 6 percent.

Would you take advantage of the fall and invest in this sector?

The stock closed at 90.55 rupees, its lowest in over four months. It had closed at 123.25 rupees on September 1, its highest closing point since January 7.

Mahindra Satyam fell on high volumes of over 33 million shares on the BSE and ended as the second-most traded counter.

However, at the Reuters India Investment Summit, a top company executive said customer attrition has stopped and the company was not offering price cuts to win new deals.

Are you optimistic about this stock, or do you think it will fall further

The move by conglomerate Reliance Industries, controlled by Ambani, to bid for bankrupt LyondellBasell is a calculated one. Markets seem to think this is a bargain and investors pushed up Reliance’s stock nearly 4 percent on Monday.

If the deal, which sources say may be worth $12 billion,  goes through, it would catapult Reliance into the ranks of top petrochemical makers such as Saudi Arabia’s SABIC, Germany’s BASF and Dow Chemical Co.

The bid comes at a time when asset prices have fallen globally in the wake of the economic crisis but there are still some lingering doubts over whether the worst is over for the global economy.

Reliance hasn’t shied away from making mega investments during downturns.

Last December, Reliance commissioned a 580,000 barrels per day refinery next to its existing 660,00 bpd plant  in the western Indian state of Gujarat, creating the world’s biggest oil refining complex just as global oil demand began to collapse.

Reliance has a cash pile of $4 billion and $8 billion in treasury stock that can be sold, so funding is unlikely to be an issue for the company, Macquarie said in a research note ahead of the bid. Bank of America Merrill Lynch is among the advisers for Reliance, sources said.

In its bid for Luxembourg-based LyondellBasell, which filed for bankruptcy protection in January, after being unable to make its debt obligations, Reliance, India’s largest listed firm, with a market value of about $75 billion, might be taking advantage of the lack of any competing bids.

LyondellBasell had sales of close to $51 billion in the 2008/09 financial year, while Reliance, which has interests in petrochemicals, refining, oil and gas exploration, and retail, logged revenue of about $32 billion.

James Tobin believed a small tax on speculative transactions was acceptable and a reasonable means for third world countries to garner some revenues out of foreigners who wanted to dabble in their markets.
It doesn’t stop with Brazil. Indonesia hasn’t introduced a Tobin tax, but is trying to close a loophole through which corporates borrowing through special purpose vehicles could evade local taxes. Both Taiwan and Indonesia have also targeted short-term foreign investments — Taiwan has banned foreign investment in time deposits while Indonesia is thinking of banning overseas investors from central bank bills.

In an environment of low interest rates, abundant liquidity and a voracious appetite for yield, Asian and other emerging markets have had to deal with massive capital inflows. Policy makers have almost grudgingly watched their property and equity markets propelled to higher highs by these flows. In economic parlance, there’s been a jump in broad money growth and the cash in excess of what is required to finance ongoing economic activities is finding its way into financial assets.

As this chart illustrates, there’s been a rapid increase in capital flows into Asia since the middle of 2009, accompanied by a sharp spike in share prices.

Central banks are running out of choices. They cant raise interest rates just in order to prick an asset bubble when industry and domestic demand is still weak. They have let their currencies rise to an extent, but further appreciation is undesirable. Until export demand in developed markets picks up or big neighbour China lets its yuan appreciate, any further gains in these Asian currencies will further hurt their already struggling exporters. As this chart shows, the gains in currencies such as the won and rupiah are already causing some discomfort.

Most central banks are intervening to absorb the dollars flowing into their markets, but that intervention merely replaces the foreign currency in the market with local currency, which finds its way into the asset markets. If central banks want to intervene to keep their currencies from rising, they also have to sterilise the local currency liquidity by issuing bonds.

The cost of sterilisation matters. For countries with interest rates close to those in the United States or developed markets, such as China, Taiwan and Hong kong, it is quite easy for them to intervene and then sterilise the resulting local currency liquidity by issuing securities, whose yield is also quite low. It is a different matter for an Indonesia or an India, where central banks are issuing securities at 6 to 9 percent in order to soak up excess balances in their markets.

This is where capital controls, either in the form of a tax like Brazil’s or outright quantitative bans like Indonesia’s and Taiwan’s, become an attractive policy option.

Who’s next in Asia? Because of the high “carry” and hence sterilisation costs, India and Indonesia and even Korea to some extent are prime candidates for capital controls of some form in Asia. The less likely are those with low interest rates, such as China, Taiwan or Thailand, which have massive current account surpluses but where low interest rates can support a heavy intervention-plus-sterilisation policy for a long time.

In the past decade or so, Asia has seen almost the entire gamut of capital controls. Malaysia’s was the most extreme when, faced with massive capital flight in 1998, it pegged the ringgit, closed its shores to foreign portfolio flows and banned offshore trade in its currency. Thailand’s case in 2006 was a case of heavy taxing, when portfolio flows of tenors shorter than a year were taxed 30 percent. More recently, Korea in 2008 used more or moral suasion and restrictions on onshore borrowing of foreign currencies.

This time however, the bitter after-taste of the Thai and Malaysian controls still fresh in their minds, most investors suspect capital controls will take the form of taxes and tweaks, rather than wholesale bans on entire asset classes or types of money.

Bharti Airtel was also the top Sensex loser. Smaller competitor Idea Cellular closed 2.85 percent lower.

The telecom sector has gone out of favour with investors after firms slashed call tariffs, raising concerns about their profitability.

Bharti Airtel’s shares have dropped as much as 34 percent since October, while rival Reliance Communication has lost 44 percent over the same period.

Given the fact that India is the world’s fastest growing telecom market, would you take advantage of the fall and invest in these counters?

RIL shares had fallen more than 3 percent over the last three days in the absence of any major announcement at the company’s annual general meeting earlier this week.

The Oil & Gas Index rose 1.52 percent, helped by gains in stocks like Reliance, BPCL, Aban Offshore and HPCL.

Investors in RIL have been rewarded well as shares of the country’s top listed firm have gained 10 percent in November so far.

Do you think Reliance shares will continue to rally?

Indiabulls Real Estate, HDIL and Unitech slipped over 5 percent each and ended as the top losers in the index. Phoenix Mills was the only counter on the index that closed in the green.

Shares in DLF, India’s top listed realty firm, fell 3.7 percent.

Manish Kumar, head of investments at ICICI Prudential Life Insurance, told Reuters he was shying away from the real estate sector given its sharp rise and valuations that are pricing in significant increase in execution.

What’s your take on this sector?

Top IT stocks Infosys, Wipro and TCS touched their 1-year highs as the BSE IT index closed 0.7 percent higher.

Over 90 stocks on the benchmark index touched their 52-week highs during trade, including banking counters HDFC Bank and Kotak Mahindra Bank.

With many stocks posting healthy gains in the recent past, do you think there is more steam left?

The Oil & Gas Index slipped around 0.7 percent in trade, with ONGC, BPCL and Reliance among the losers.

Energy major Reliance Industries shed 0.7 percent to 2,133.75 rupees, as the energy major did not make any major announcement at its annual general meeting today. Chairman Mukesh Ambani said the company would work towards attaining global scale for its conventional energy platform and invest in new businesses such as retailing and alternative energy.

The BSE Oil & Gas Index has gained over 8 percent this month – a little higher than the benchmark’s gain of 7.2 percent in the same period.

Do you think it is a good time to allocate funds to this sector?