Hungover on 'tech'

With more than half of calendar year 2001 behind us we take a look at the performance of global equity capital markets in the first half of the year. In the aftermath of the tech bubble, global markets have been subjected to a severe pounding. Compounding this meltdown has been the following slowdown in the global economy, as the excess built up during the boom years are corrected by market forces. Consequently, equity markets, besides adjusting for the stratospheric valuations, have been facing an environment of declining profits or slower earnings growth, which has prolonged and precipitated the fall. In the first of 2001, the Dow Jones (DJIA) index, representative of the top blue chip companies, has performed the best declining only 2.2% in this period. The other major U.S index, representative of the tech (new economy) sector, the NASDAQ is lower by 11.5% since start of the year.

The Indian bourses, besides having to cope with corrections and business cycles, have been continuously pounded with fresh scams being unraveled. Over the past four months we have had a defence scam, insider information scam, Madhavpura Mercantile Co-operative Bank scam and the now the Unit Trust of India scam. With all the bad news, hurting investor sentiment, it is not surprising that the Indian bourses have performed worse than their U.S counterparts. The BSE Sensex is down 17.8% year to date and the NSE Nifty is lower by 16.2% over the same period.

Although, with Murphy casting his spell, the performance of domestic markets has been better than a leading East Asian benchmark, the Hang Seng (Hong Kong stock market index). The East Asian benchmark index is down 18.1% in the concerned period. Among the concerned bourses, all the the indices seem to have bottomed out during mid April. The U.S markets, however, are trading above these lows. The Asian markets on the other hand have retreated to those lows after the interim rally.

Most market participants are not expecting a revival in the global economy before the start of the fresh calendar year. The domestic economy too is not expected to revive before the second half of fiscal '02 with an upturn more towards the latter part of 2HFY02. Consequently, equitymarkets could continue to have another challenging half-year ahead.