Sources said Morgan Broking had reportedly sold over 42 lakh shares of ITC which brought the share down to Rs 705 on the BSE.

"The fear that Morgan is trying to exit out of Indian markets seems to be baseless," said a fund manager with a leading FII firm, setting aside all such rumours. "It makes sense for any investor to exit out of the ITC counter at Rs 700 plus levels, when one has taken an exposure at lower levels of Rs 600-odd, given the fact that the performance of the company has been much below market expectations," he explained.

ITC traded in the band of Rs 705 to Rs 778, with over 1.62 crore shares changing hands in the scrip on the local bourses. Sources saidthat ITC is one of the 20 stocks scheduled to move to compulsory demat trading by institutions from August 10. "The stock will enter into the no-delivery phase from the second week of June and will move out exactly during the last week of July hence, a lot of institutional selling is bound to happen at this counter before the budget," explained a BSE broker with reference to the selling by Morgan and the backwardation charge attracted by the stock.

The market was hit by a fresh bout of speculative sales on fears of the impact of US sanctions and the falling value of the rupee. Panic-selling saw the 30-share BSE Sensitive index plunge below the psychological barrier of 3,800 to close at 3,777.19 points, losing 97.87 points.

Although UTI was reported to have played a vital role in propping up the Sensex to 3,800, continuous selling by FIIs in the shares of Reliance, SBI, BPCL, HPCL and ITC saw the index plunge below that level ultimately.

"The postponement of loans by the World Bank to India also seems tohave hurt market sentiment and operators do not wish to take positions ahead of the budget which is bound to be a harsh one as indicated by the finance minister," said a dealer with an FII broking outfit.

Interestingly, while a huge chunk of Asian Paints' shares was sold at a discount to the market price, the stock shot up to on the bourse to Rs 307.20, up 3.58 per cent. Market analysts attribute the likely budgetary sops for the domestic paint industry as the main reason for the jump in the stock.

Sources said WI Carr had, on behalf of a leading FII, reportedly sold chunks of HPCL which saw the scrip fall by Rs 6 to trade at the intra-day low of Rs 368. The Big Bull-led counters such as Sterlite and Videocon International traded at new-52 week highs. Market sources, however, feel that these scrips must witness a correction as they are not moving in line with the fundamentals.

Skindia GDR Index slips to 52-week low

Political and economic factors continued to play havoc with equities on thelocal and GDR bourses. The Skindia GDR Index crashed by 7.21 per cent to touch a 52-week low of 762.84 points during mid-session trading on Wednesday. In the midst of thin volumes and absence of institutional buying the Skindia GDR Index price-earnings ratio fell by 8.02 per cent to close at 17.38 points.

Of the 65 GDRs, 36 GDRs recorded a massive erosion in their values while 28 remained unchanged. Pivotals like Reliance, SBI and Telco lost ground by 7.51 per cent, 6.35 per cent and 9.09 per cent, respectively. The ITC GDR slumped by 12.64 per cent to close at $19, while the GDR of Reliance fell to a low of $8 and that of SBI slumped by 6.35 per cent to close at $14.75 at 13.00 GMT.

The Indal GDR, however, remained an exception. While the stock shed about 0.7 per cent in the GDR markets, it continued to trade at a premium of over 5 per cent at $4.20. The Sterlite GDR, however, remained unchanged.

Meanwhile, pivotals continued to lose ground on the kerb. ITC was quoting at a low of Rs 702, while SBIcontinued to trade at Rs 245 levels. Reliance was quoting at a discount of 1 per cent.