Free fall on Indian bourses

By Oommen A. Ninan

MUMBAI, SEPT. 23. The direction of stock markets is continuing to be uncertain. An imminent attack by the U.S. on Afghanistan and the global meltdown of stocks point to a gloomy future on bourses.

``Globally the risk on equity seems to have risen significantly since the tragic events in New York two weeks ago. Mirroring the trend in global markets, the Indian bourses have been on a free fall, particularly, technology stocks, where sentiment is hit harder because of implications from worsening outlook of the U.S. economy. Old economy stocks such as Hindustan Petroleum, Bharat Petroleum and ACC have, of course, risen from the bottoms. But there exists a significant risk that the markets could tumble from the current levels depending on movements in the global markets and the exact shape and form of U.S. retaliation against Afghanistan. It makes a lot of sense to remain cautious,'' felt Mr. Ashwini Agarwal, Executive Director, Kotak Securities.

The Bombay Stock Exchange sensitive index (Sensex) crashed to an 8-year low at the close of trading last week. The benchmark index tumbled by 230 points to 2600.12 from 2830.12 recorded in the previous week. In the last two weeks the Sensex lost 598.28 points. On the National Stock Exchange, the S&P CNX Nifty index lost 67.85 points at 853.25 against 921.10 in the previous week. The Nifty lost 182.65 points in the last two weeks. Bourses witnessed heavy selling especially in information technology stocks leading to a fall of 8.12 per cent in Sensex. The sharp fall in the international stock markets last week has brought the fall in the Sensex in line with them. The absence of any major domestic institutional support has led to a sharp fall in stock prices on the last day of trading.

``The Sensex, which was likely to stabilise around 2800-3000, has fallen further post attack on World Trade Center in New York. Also, the week has closed at the lower end,'' said Mr. Jignesh Shah, Strategist, ASK-Raymond James. Any major rally will find major resistance around 2800. Since the fall is steep, it would now take more time for the market to stabilise. ``Since 13-days RSI (Regulative Strength Index) is in an oversold zone, minor short term recovery is possible. Also, a number of front-line stocks such as Infosys Technologies, Reliance Industries and Hindustan Lever were weak on the last trading day of the week. It shows further hammering in Sensex is possible. Intra-day volatility has increased. Uncertainty about the war like situation may also keep the sentiment subdued,'' Mr. Shah added.

``The big and middle cap infotech stocks have now melted with Infosys losing 36.85 per cent, Wipro 40.43 per cent and Digital Equipment 44.72 per cent more than double the loss in the Sensex,'' said Mr. Imran Contractor, Research Head of Milan Mahendra Securities. A sharp slowdown in technology business is expected by various research agencies. This was countered by the Infosys management that it would maintain its forecast already announced earlier for the current financial year. ``However,'' said Mr. Contractor, ``market refused to buy the story. The stock had only sellers and hit the down circuit on Friday.'' Wipro has fallen on rumours of profit warning issued by the company due to a sharp slowdown in the telecom sector, software and research. Fast moving consumer goods (FMCG), automobile and pharmaceutical stocks were the least hit.

Ever since the fall in global stock markets, after the attack on the U.S. and its mammoth business and defence establishments, the Indian authorities are worried about how to prop up the markets in the country. The Government has decided to increase the investment limit of foreign funds to the level of foreign direct investment set in various sectors by the Ministry of Industry. These measures were announced a day after the Finance Minister assured foreign funds that the Government would come out with a slew of investment-friendly measures to boost the investor confidence. And now the ``margin trading'' is introduced by the Government to boost the sentiment on bourses with a minimum margin of 40 per cent maintained by banks on funds lent for margin trading. These measures are good and may have a long term effect on the markets but the Government cannot expect a knee- jerk positive reaction from the markets.

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