Financial Daily from THE HINDU group of publications
Tuesday, May 23, 2006
Financial Daily from THE HINDU group of publications Tuesday, May 23, 2006 |
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Stock Markets Markets - Stock Markets Our Bureau
Mumbai , May 22 It was as if a tornado of the Twister mould had ripped the stuffing out of India's capital market in the first couple of trading hours on Monday. By 11.45 a.m., trading in the country's premier stock exchanges, the BSE and the NSE, lay in ruins as the Sensex sank by 1,111.7 points from Friday's close of 10,938 and the NSE's S&P Nifty plunged by 350 points to 2,896.40, before trading was suspended for an hour. In its first fall beyond the 10,000-mark since it broke the five-figure mark in early February, the BSE Sensex fell to 9,286.91 during this phase. Having triggered the 10 per cent lower circuit, it took a one-hour suspension of trading mid-day to stem the panic and arrest what was otherwise turning out to be a freefall with no visible break to cushion the plunging indices.
Govt prop
The prop provided by the Finance Ministry and the Reserve Bank of India to the bourses, bruised by the worst hit in recent times, reversed the course of the market in the post-noon session. The lexicon for the traders no longer spelt despair, but provided glimpses of a market resurgence. By the time the day's trading ended, the damage control exercise had worked wonders. The Sensex was down only 456 points from the day's high of 11,042.90 points, when the week's trading began.
Market cap erosion
In the last eight sessions from May 11, investor wealth to the tune of Rs 21,16,693 crore has been wiped out. Market cap erosion on the last two days alone stands at Rs 64,708 crore. From the all-time high of 12,671.11 of May 11, the Sensex has now fallen by 2,189 points. Mr Motilal Oswal, Chairman and Managing Director of Motilal Oswal Securities, said: "We feel that the worst is over. It is time for investors to enter the markets. However, we are not advising clients to go into aggressive buying or selling."
No settlement problem
On a day of several twists and turns, both the NSE and the BSE were forced to clarify that there was no settlement problem and that the pay-in and pay-out processes were on course. Thursday's pay-out was completed on Monday without any problem. An overwhelming portion of the mid-cap and small-cap stocks hit the permitted lower circuit limit, forcing the brokerage houses to sell off clients' positions in large-cap stocks to pay up margins, dealers said. This accentuated the fall and resulted in the one-hour trading halt. It was on May 17, 2004 that the markets underwent a similar trading suspension earlier.
State of shock
"Markets are in a complete state of shock. It will take some time to come out (of this state). There were huge open positions in the F&O segment. When the market takes a plunge everybody runs for cover. Volatility in the stocks markets will continue for some time," said Mr Hemang Raja, Managing Director and CEO of IL&FS Investsmart. After the one-hour break, leading domestic institutions including LIC and mutual funds acted, apparently at the behest of Government, to intervene in a big way. This helped the market to recover to an extent, dealers said.
Correction an opportunity
"We have been buying in the last few sessions. The markets look attractive at these levels," said Mr Deepak Chawla, Managing Director of SBI Mutual Funds. Several foreign funds that have been advising caution, saying that that the markets were trading near "bursting point," are expected to make entry. "There is no reason to panic from the fall - if anything the deep correction provides a buying opportunity for long-term investors," said Mr Amit Chandra, Joint Managing Director of DSP Merrill Lynch. "As time goes by, we will probably be happier that the fall was sharp and quick. A long-drawn out fall would have appeared to be a bear phase and softened investor interest in what remains a very exciting growth market," he said.
Foreign funds net sellers
Significantly, foreign funds have been net sellers to the tune of Rs 1,270 crore in May, as of Friday; this is the first time since October last year that FIIs have turned net sellers in Indian stock markets in a single month. Contrary to the Finance Minister, Mr P. Chidambaram's claims, FIIs were net sellers on Monday too, at Rs 872 crore, according to the NSE's provisional figures. Mutual funds were net sellers to the tune of Rs 762 crore and Rs 848 crore on Thursday and Friday respectively, bringing their net investments in May to Rs 4,430 crore. Despite the recovery after the resumption, the market breadth was overwhelmingly negative, with 2,109 shares ending in the red. Only 236 shares ended positive from Friday. Wipro Ltd was the biggest loser on the Sensex, falling by 10.36 per cent to Rs 439.95, followed by Tata Motors (10.24 per cent to Rs 761.95), Grasim Industries (8.73 per cent to Rs 1,757), L&T (6.82 per cent to Rs 2,328.70), and Tata Steel (6.10 per cent to Rs 472.80).
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