The Monday morning blues worsened with the stock exchanges in India opening with a resounding crash. It was with utter disbelief that one watched the stocks and indices plummet, flirting close with their new 52-week lows. It has been a free fall and no one could really predict the bottom at this juncture. The only verdict which all agreed upon was – the going looks very tough right now.
The Indian markets had to absorb two new’s at one time – one was Lehman Brothers filing for bankruptcy and then the other news of Merrill Lynch, the world’s largest broking firm, being bought over by Bank of America for $50 billion. These are two of the biggest “FIIs” for India and the fact that these two are in such grave trouble, sent a wave of panic. There is now panic that any and every bank in USA could topple. There are similar, concerned hushed whispers in the corridors about the health of AIG and Washington Mutual. So the reason for the panic right now is – how many more banks/fund houses in USA are on the brink and would collapse? Though analysts said that the Indian markets were over reacting, the markets paid no heed and continued southwards.
Right now the biggest worry is the selling by FIIs, which is expected to continue like an avalanche, would take the markets down further. As per data on the NSE, Foreign institutional investors (FIIs) were net equity seller’s worth Rs 1497.67crore on Friday, 12 September 2008. FIIs were net sellers of Rs 777.40 crore in the futures & options segment. What has aggravated the sell off by the FIIs is that some of the Asian markets are closed today, and in their panic to liquidate, they are selling today on Dalal Street.
The sell off is happening mainly in frontline and mid range stocks. Real Estate sector stocks faced a major sell off on perception that FIIs have invested heavily in this sector. Lehman has confirmed that there would be no threat to the investments it made in Unitech but the markets were in no mood to listen and the stock touched a new low today. Lehman Brothers Real Estate partners have invested Rs.740 crore for a 50% stake in Unitech’s Western Express Highway project in Mumbai.
IT stocks were down as banking, insurance and finance forms a large chunk of business from USA. Confidence has been shaken due to the collapse of Lehman Brothers and its effect on the US financial sector. Banking stocks have also been butchered as after Lehman collapse, investors seem to have lost all appetite for financial stocks.
This is not a time to book profits/losses, there is no need to work oneself into a panic. This is the best time to go bottom picking. Yes, globally things do not look very good and maybe, some more liquidation would come in; there would be major global retrenchments; lowering of earning estimates. But this fall on the Indian markets was necessary for re-correcting, cooling off the over heated bubble Indian markets had reached.
New bottoms will most likely get tested and index could go down further from this level. But in USA, this churning appears to be the last and things are nearing the end. At this juncture, it is difficult to pick the bottom for the markets. But yes, India remains relatively safer, economically. The falling price of crude is good news. The US dollar vis-à-vis the other currency has fallen but is rising against the rupee due to the FII sell off. Indian markets would take the cue from the Asian markets which would open tomorrow morning and from the US markets tonight. There could be some more sell off’s tomorrow and now we should look for stabilisation and not recovery.
By Ruma Dubey
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