The Hindu Business Line : Bumpy ride looms large on lack of confidence

Black week: For the share brokers and investors it was a ‘Black Dusshera’ as the BSE Sensex tumbled by over 15 per cent last week. With foreign funds dumping heavyweight stocks on the back of spreading global financial crisis, investors hoping for some positive clues from big economies to boost market confidence. –

This week Dalal Street is unlikely to see emergence of any serious buying. The fear psychosis that has gripped the market would not let it happen. On the contrary, selling pressure may not abate until confidence is restored. A bounce back may tend to bring about some temporary relief, induced by better opening in the Asian markets.

But overall weekly outlook seems gloomy. Even coordinated efforts by central banks at easing liquidity are proving to be inadequate.

Companies in trouble

If local market intelligence is to be believed, market turmoil has caught up with some of the corporates, including a private bank, hedge funds active on Dalal Street and a few brokerages. The rights issues of some of the Indian corporates may need promoters to pump in extra money.

The money is being organised through quick divestment of equity assets. Some mutual funds, in this eventuality, are unlikely to avert redemption pressures.

Bank in soup

An Indonesian business family, which has run into deep financial trouble, is said to have caused a $300 million hole in the Singapore operation of a private Indian bank. This is supposed to be the major trouble in the bank’s UK subsidiary. Market apprehends that reflection of these troubles would be found in the quarterly accounts of the bank. When unconfirmed news is preceding bad news on the ground, markets tend to believe the rumours more.

As the global financial markets’ crises deepen, its shadow on the real economy lengthens.

If the current crises heralds in a global recession, as foreseen by some, it would reduce corporate earning prospects significantly. Having factored in the negatives till the September quarter, markets now are looking beyond the current crisis.

Even if the markets overcome the liquidity crisis and the crisis of confidence in the near future, the damage to the economy cannot be addressed by short-term monetary measures. Many of the fundamentals would be under threat.

The road in the next few quarters could be bumpy, to say the least.

The assumptions on the corporate earnings going forward would obviously be re-evaluated as things emerge. That is why those who swear by India’s “unaffected” fundamentally sound story are hesitant about committing themselves now in long-term investments.

(Responses may be sent to jayanta_mallick@thehindu.co.in)