• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Weekly outlook continues to be grim as what is happening on Dalal Street is increasingly reflecting depressing events outside. Last week, high profile US hedge fund Citadel Investment Group reported its flagship fund eroded it worth by 26 per cent in 2008. Market intelligence suggests Citadel dumped Indian stocks in its money mop up exercise.

It is not the only among top hedge funds to suffer.

A number of US and Europe domiciled hedge funds, which have had exposures in Indian equities directly or indirectly through offshore derivative instruments are on a selling spree. Hedge funds use short selling as an investment strategy rather than as a hedging strategy and it can suffer very high losses if the market turns against it. Hedge funds also use participatory notes.

Market regulator is justifiably concerned over recent sell off by FIIs. But it would be very difficult to police this when ambivalence dictates policy over use of the overseas derivatives instruments. Long-only overseas funds are also selling in the Indian markets as redemption pressures at home from their clients rise.

Local mutual funds, which would not admit officially, are also witnessing redemptions. The liquidity flow cycle has not yet normalised and confidence level is still low. Market insiders apprehend that the large rights issues may devolve. These are indirect impact of a pervasive fear.

Last week, an IT company faced hurdles in withdrawing its investment in money market instruments worth just Rs 40 crore. What the company, which actually needed much bigger fund to finance its recent acquisition abroad, did was even more revealing. Sensing a tight situation, it eventually liquidated all its liquid fund investments worth Rs 800 crore, albeit at a higher cost.

Borrowing has become costlier for corporates and consumers. Will all these affect capex plans?

The asset valuations are getting depressed because of a deep sense of uncertainty ahead. Optimists put a timeframe of six months for this trying situation, which coincides with the Lok Sabha elections. Some, who would like to play safe, and mention 12-18 months period of a tough time for the local market.

There is even more bearish view, however, which predicts continuation of turmoil for 24 months.

Though some believe that results of the recent efforts at instilling confidence and pumping in of additional liquidity into the system would perhaps be reflected on the ground from this week onwards, a lot many people think going forward the system would require more such stimulus so that the real economy does not get hurt too much.

The corporate results so far indicate a dent in demand and rise in cost; but they are still at manageable levels.

If the fall in prices of commodities, including crude oil, could be leveraged, investments rates are retained at a relatively higher trajectory and consumptions are maintained at a decent level, then the economy can weather the storm better than rest of the world.

Hands-on policy engineering is, however, crucial in this time of paradigm shift.

(Responses may be sent tojayanta_mallick@thehindu.co.in.

More Stories on : Stock Markets | Outlook | A Ringside View

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line