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Indian bourses fear most - Views on News from Equitymaster
 
 
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  • Sep 19, 2001

    Indian bourses fear most

    There was a sigh of relief in the markets after two consecutive days of unabated selling. The much-needed breather allowed investors to soothen their frayed nerves and rethink the episodes of last week more objectively. The U.S markets also showed some strength with the benchmarks closing marginally lower.

    The strikes at the World Trade Centre threaten to push U.S into a recession, as the crutches of the economy, consumer confidence, give way. We have heard the New York mayor try and boost consumer confidence by asking them to go shopping. A weaker global economy is likely to impact commodities market, which has been sliding since start of the calendar year. But added weakness in the U.S economy leading to cut back on corporate investments is most likely to affect the domestic technology sector, as 60% of the revenues are generated from U.S markets. Murphy does not seem to be leaving technology.

    India's Top Five ($ bn)
    Textiles 9.2
    Gems & Jewellery 7.6
    Agriculture 5.5
    Engineering goods 5.0
    Chemicals 4.5

    Sticking to exports, the impact on the Indian economy is not expected to be significant, as exports contribute only 10% of the country's GDP. On the other hand, our East Asian neighbours have more reason to be worried, as their economies are primarily export driven. U.S is among their principal destinations. Further, exports are primarily technology based -- hardware -- a sector, which is seeing a marked slowdown. Nonetheless, stock market readings seem to portray that India, comparatively, would be a bigger loser.

    Such beliefs seem to be largely supported by the possibility of military action closer to home. The Bush administration has come out very aggressively -- this is a war waged against the civilized world -- against the terrorist attacks. Nothing wrong with that, but a war in the neighbour's backyard is too close for comfort. Also, the Kashmir issue is fluid with Kargil in '99 and a failed summit this year. Fundamentalist groups trained in Central Asia are active in the valley. India's support of the allied forces could lead to increased insurgency at home.

    Asian Markets post WTC strikes
    Singapore -15.0%
    India -12.6%
    Korea -11.9%
    Hong Kong -10.2%
    Pakistan -9.3%
    Japan -5.0%
    China -3.1%

    The strong comeback by U.S could be expected. After all, even President Bush has an electorate he has to keep happy. But, one would expect, America not to act in haste and make responsible judgments. The U.S economy is fragile and the situation getting ugly in the Middle East could make matters worse. Higher inflation when consumer spending is weakening. Higher interest rates when business sentiment is not upbeat. Therefore, U.S too has some thinking to do.

    Back home, to boost investor sentiment the market regulator, SEBI, is contemplating a slew of measures. This could provide some technical strength but investors need to have confidence to re-enter markets. This could take some time leading to market fundamentals remaining weak. Consequently, the measures are not likely to have an immediate effect on the bourses. Some of the measures include:

    • Allowing faster mechanisms for share buyback.
    • Introduction of stock futures in 57 scrips. Also, permitting FIIs across the derivatives market. Currently, FIIs can participate only in index futures.
    • Re-introduction of deferral products. The SEBI and RBI have announced the approval of bank lending for margin trading. Banks can lend a maximum of 60% in a share purchase transaction.

    In the immediate term the visibility is very poor, as one does not know how the jigsaw falls in place. Although the spectre of war hangs over the bourses the markets may start reflecting the possibility that the situation may not reach 'threatcon delta' in India. But the third quarter comes to an end in U.S. This could start confession season, which again is a dampner for the domestic markets.

     

     

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