'Irrational anxiety'? - Views on News from Equitymaster

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'Irrational anxiety'?

Dec 23, 2000

Although the markets registered gains on Monday, for rest of the week they continued to slide. During the week both the Bombay Stock Exchange 30 Index and the National Stock Exchange 50 Index fell by 231.3 (5.6%) and 70.6 (5.4%) points respectively. The decline that started in the previous week gained momentum this week. The sell off grew in strength with the meltdown on the NASDAQ, which was down 5.2% for the week. In fact, NASDAQ tested its 16 month lows before rising sharply on Friday as bargain hunting investors found it difficult to stay away from battered technology stocks.

The sharp decline on the US bourses could be due a slow down in the economy, consequently, impacting both new and old economy counters. The western market continues to struggle under a stream of profit warning by blue chip companies. Further, technology counters still remain under the watchful eye as markets re-rate the sector. The final blow came from the federal bank, which announced that it will not cut interest rates leading to an exodus from the stock markets.

The Indian bourses being cued on to the US markets followed the slide. Further, the churn in portfolios from tech to a higher weightage in old economy stocks was clearly visible with buying in old economy (defensive) counters providing resistance to a falling market. However, the last two trading sessions also saw the brick and mortar companies go out of favour as selling entered across the board. The sell-off on Friday could also be due to a top international research house downgrading the entire technology sector.

Investors have clearly taken refuge in defensive sectors as the FMCG, energy and to some extent pharma counters registered gains for the week. HLL, Nestle, P&G, Colgate, HPCL and BPCL were amongst the few to be in favour, consequently, indicating tougher times ahead.

Over the past nine months the tech story has turned a complete cycle from 'irrational exuberance' to 'irrational anxiety'. Pivotals in the TMT sector continue to receive a cold shoulder from the market. 'Tech' the market darling no longer continues to be the blue-eyed boy. The 176 points NASDAQ rally on Friday has ominous connotations for the Indian bourses as all ADRs fell despite the surge. Several industry heavyweights have fallen to their 52-week lows and could offer bargain opportunities.

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