The Hindu Business Line : Markets this week

The bloodbath in the global financial services markets with maximum impact on the equity bourses following the crises at Lehman Brothers and Merrill Lynch shook the Indian stock markets too on Monday, sending the benchmark Sensex into a tailspin. The terror strike in the Capital on Saturday actually turned out to be a near non-event for investors compared to the hurricane strike which felled Lehman and threw Merril Lynch into the arms of Bank of America. Markets opened weak, and furious selling by failed houses pushed the Sensex further into the abyss, recording a low of 13180 with a loss of around 800 points intraday. Some late buying propped up the market to finish the day at 13530, paring some of the losses.

Investors, appalled by the mayhem in the equity markets, can however take heart from the fact that Indian equities outperformed their Asian peers in the last two months. India benefited from the sharp fall in commodities, while major exporters of commodities such as China, Malaysia and Thailand, got negatively impacted owing to the crash in commodity prices as well as slump in export volumes owing to growth slowdown in other world economies.

Among the many investments Lehman had made in India, Delhi-based Unitech had received about $175 million (Rs 740 crore). A company spokesman confirmed that "Unitech has already received the money and closed the deal with Lehman Brothers' managed real estate fund.

The fear of dumping of shares by the beleaguered Lehman and its associates may well be exaggerated. For one, the value of equity holdings held by the Lehman group in Indian stocks amounted to just Rs 1,030 crore as on June 30, 2008. They had already exited roughly 40 per cent of these holdings through sales put through in the past month, leaving only the remaining shares to be liquidated.

While the collapse of the US-based Lehman Brothers may not have a direct impact on Indian banks, some of them may face marginal losses due to their exposures to the US investment bank. ICICI Bank, the biggest private player in the country, arguably has the largest exposure.

The turbulence in the global equity markets echoed not only in the domestic equity markets, but also in the currency market, with the rupee crashing by 90 paise in intraday trade on Tuesday. "The fall was mainly due to the global crisis in the credit market, which affected the equity market and also the rupee. Foreign institutional investors are taking out their money now causing a dollar outflow,'' said a forex advisor.

After Lehman Brothers filed for Chapter 11 bankruptcy protection and Bank of America took over Merrill Lynch & Co, the action scene has shifted to troubled mega insurer AIG, which is seeking capital to stay afloat. US stocks turned higher after CNBC reported that the government was considering extending a $ 85 billion financial lifeline to AIG.

FIIs have been on a big selling spree for the past five days. In the last two days alone their net sales in equities amounted to Rs 2,066 crore. The Sensex has dropped more than 3 per cent since Friday. Merrill Lynch and Deutsche Securities were the notable FIIs who resorted to aggressive selling, as per the data provided by stock exchanges.

With the market falling sharply, the number of stocks hitting year lows have been on the rise. As many as 250 companies hit their 52-week lows on the NSE. Total number of stocks traded on the NSE was 1,267. "The crisis of confidence is back with Monday's mayhem and has forced investors on the back foot yet again. The painful period is likely to last a while, and there could be further selling if more skeletons tumble out of the Wall Street closet," opined a brokerage house.

The sharp upward revision in the open offer price from Rs 7,315 a share to Rs 15,000 by the Emami group to mop up a 20 per cent stake in Zandu Pharmaceuticals provides a good exit opportunity to Zandu's shareholders, but escalates the acquisition price for Emami, avers an analyst. Since the stock was jacked up to Rs. 20,000-levels prior to this news, it witnessed profit-booking.

Convulsions on Wall Street eased a bit on Wednesday, feeding on the announcement by US Federal Reserve of a bail-out of the embattled AIG that may help the US insurer from going down the Lehman way. But the Asian equity markets including India caught the cold and sneezed its way to suffer under acute selling pressure.

The US FDA has blocked import of 30 generic drugs manufactured by Ranbaxy at its Dewas and Paonta Sahib plants in India. The regulator explained the decision was made owing to the company's failure to meet the specified US standards of drug manufacture. The stock was battered down and lost nearly 20% in the bourses.

With the smoke yet to settle over the Lehman blast, ICICI Bank is facing the heat as a result of its subsidiary's exposures in the investment bank. Rumours of top management selling their shares in the bank pulled down the scrip more than five per cent, but the management has vehemently denied this in a statement.

Indian companies in which FII shareholdings are substantial are likely to come under more selling pressure on the bourses, marketmen believe. "Many financial majors that are in crisis overseas would get their FII units in India to sell whatever they have so that they can send funds back home," said one broker house.

Sesa Goa stock was witnessing steep decline in recent times. In the past one month, it has dropped by over 36 per cent. However, a weekly fall for the one-rupee stock, which finished at Rs 112.25, has been more severe at 30 per cent. The spot price for ore in China dropped by $55 a tonne from $185 a tonne in July, impacting this sector. The ore shipments significantly dropped last week to 33,000 tonnes compared to 2 million tonnes in the corresponding period last year, said an analyst.

After declining for three successive weeks, inflation rose marginally to 12.14 per cent for the first week of September mainly owing to dearer food items like fruits and vegetables, said a government statement on Thursday.

Heavy buying by domestic institutional investors and short covering pulled the Sensex up by a staggering 788 points from its intra-day low of 12,558 points on Friday. Sentiment brightened after the European markets opened in the green and after various central banks across the world announced massive injection of funds into the global financial system.

The tremendous uncertainty in the financial markets coupled with the fall in gold prices last month worked in favour of the five listed gold ETFs in the country, whose collections rose 14 per cent in August.

The initial part of the week was under the control of bears aided by financial collapses, but later part saw sanity return to the bourses with the soothing assurance from the Finance Minister, that India is safe amid the turmoil. The Sensex closed the week with a handsome 14042, a gain of 720 points, after having opened the week at 13530, losing 470 points.

Compiled by B.L. Sudarsan
Podcast by R. Venkatesan

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