Mar 10, 2001|
Back to October 2000
The gains that were made post budget have all been washed out in the current week. The continuing slides on the NASDAQ and more importantly payment problems by some of the top brokers have triggered a selling spree. The market regulator, SEBI, in fact first imposed higher short selling margins followed by disallowing short selling for 2 weeks.
Despite these efforts, markets have tumbled. Last year the markets bottomed out at 3,594 on October 18, 2000 (interestingly October 19, 1987 was the 'black day' on the NYSE). The concerns then weighing heavily were the falling US bourses, rising oil prices, impact on the current account deficit, weakening rupee, downward revision in GDP growth rates by CMIE and poor 2QFY01 results by some of the blue chips.
However, all these fears did not materialize. Declining oil prices, strong exports, growing forex reserves, stability in the rupee and better than expected 3QFY01 results all facilitated in the markets regaining strength. Further, 2001 started with strong FII inflows, which have aggregated to Rs 65.6 bn (US$1.4 bn) YTD. Also, proximity to the budget resulted in the building up of positions. All these factors resulted in the Sensex peaking at 4,439 (23.5% higher than the October lows) on February 15th.
The subsequent fall prior to the budget was reckoned to be due to the unwinding of positions. The pre-budget decline as per reports was an eventuality, as squaring off positions was to occur prior or post budget. However, with the correction and improved economic fundamentals followed by a pragmatic budget one would have expected the bulls to dominate the arena.
However, key brokers faced payment problems as a private sector bank was ordered to reduce its exposue to the equity markets and subsequently, called in its loans. Markets getting wind of this information went against these brokers, which seems to have led to a domino effect engulfing other brokers with long positions as well. This seems to have created the payment crisis faced by the bourses.
These factors coupled with a weakening NASDAQ and NIIT joining the profit-warning club seems to have sparked off a fresh round of pessimism in the TMT sector. Key sector pivotals are all trading at their 52-week lows. The old economy also has been denied a reason to cheer with the Balco disinvestment validity being debated in the Supreme Court.
The current decline could be considered healthy if renewed interest in the market is led by the retail investor as markets are somewhat purged from the unscrupulous operators. In FY95 22% of the household savings were invested in the capital market as compared to only 3% in the current fiscal. A void, if created by the weakening of operators should be filled by the long-term investor if the Indian bourses are to achieve some semblance of stability.
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