11:00AM New York, 9:30PM Mumbai – Sensex plunged 5% after a sharp correction in the U.S. Trade deficit in January rose to $9.8 billion.

Selling pressure in large and mid cap stocks Monday dragged stocks. The BSE Sensex 30 declined 5.1% or 900.84 to 16,677.88 with 26 shares in the benchmark index declining while the rest advanced.

It was the second largest one-day point and percentage loss. In the broader markets, NSE index lost 5.2% or 270.50.

Reliance Industries, the largest market cap fell 6.3% along with a loss in DLF, Mahindra Lifespace Developers, and ICICI bank.

India’s largest tobacco processor ITC receded the most in three months after the Government increased cigarette taxes. Shares of the Kolkata based company fell 4.5% to 193 rupees, registering its biggest fall since February 11 2007.

Among the BSE stocks, only 396 shares advanced, 2,330 shares declined and 40 stocks remained unchanged.

Budget

The Indian economy is currently witnessing a moderation in growth from a brisk pace last year on an expected slowdown in consumption and weak growth in agriculture.

The budget took fiscal steps to revise the consumption and increase disposable income in the hands of the middle class through lower personal income tax.

Brokerage IDFC-SSKI Securities in a post-budget report has maintained its earnings growth estimates for 30-Sensex firms. It expects 16.5% compounded annual growth rate in earnings for the Sensex 30 index stocks for the period between 2008 and 2010.

The change in tax treatment of the Securities Transaction Tax (STT) in the budget, meanwhile, may impact arbitrage volumes on the bourses. STT will now be treated as ordinary deductible expense against business income. Currently the tax is waived for this transaction. Brokers worried that this may lower liquidity in the market.

In addition, institutional investors are likely to be hit by a hike in short term capital gains tax on sale of shares to 15% from 10%, which amounts to a massive 50% hike in the tax rate. Brokers and traders are likely to take their capital gains before the revised tax becomes effective on April 1st.

Turnover

Daily turnover on the BSE was recorded at 5,090 crore rupees and on the National Stock Exchange was at 12,754 crore rupees.

Essar Oil was the most active stock on the BSE with a turnover of of 257.71 crore rupees followed by Reliance Petroleum with 237.78 crore rupees, Onmobile Global at 234.85 crore rupees, and Reliance Industries at 230.46 crore rupees.

Volumes

In trading volume, Reliance Petroleum recorded the highest of 1.41 crore shares on BSE. Reliance Natural Resources, IFCI, Essar Oil and Nagarjuna Fertilizers and Chemicals were also among the volume leaders.

Trade deficit increases

India''s export growth for January increased for the first time in three months as companies shipped more gems, jewelry and other manufactured goods.

Exports, which account for about 15% of India''s $906 billion economy, rose 20.5% as compared with $13.14 billion in the same period last year.