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Picking up the pieces - Views on News from Equitymaster
 
 
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  • Sep 22, 2001

    Picking up the pieces

    The bourses have lost over 8% in the past week as the world comes to grips with the WTC bombings and their cascading effect on investor confidence. Globally, the bourses are trading at record lows but investor confidence has ebbed so low that nobody is ruling out worsening of the situation.

    The bourses were already struggling with an economic slowdown. Profit warnings and job cuts were common place. The US Fed cut interest rates seven times in a bid to revive the US economy. Post WTC bombings the investor confidence has taken a turn for the worse. Even an unprecedented eighth rate cut by the US Fed has not been able to save the bourses from a virtual carnage.

    Indices 15-Sep-01 22-Sep-01 Change
    Nikkei 10,009 9,555 -4.5%
    Hang Seng 9,655 8,934 -7.5%
    BSE 2,830 2,600 -8.1%
    Dow 9,606 8,236 -14.3%
    NASDAQ 1,695 1,423 -16.1%

    Top companies like Boeing have announced slashing 20-30% of total jobs and Morgan Stanley has recorded a 41% drop in August profits. Back home, Hughes Software cut its earning expectations and there are rumours that other software majors are likely to follow suit. Recession is word that is being commonly used now.

    But experts are beginning to wonder whether this sort of aggressive reaction to a bombing in one part of the world is justified. With countries and cultures continually at loggerheads with each other there are bound to be crisis situations like these in the times to come. Thus such situations cannot be allowed to rule the state of the global economy. But then others point out that when the economic powerhouse is attacked, the confidence of that nation and thus the world is shaken.

    In the past two weeks the Sensex has lost over 19% and is trading at its 8 year lows. Though market participants agree that it does not reflect the fundamentals of the Indian economy, nobody seems to be willing to back this up. Whatever the outcome between the US and Afghanistan, the truth is that the bourses may not be able to climb back as easily as they have plummeted.

     

     

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