The Hindu Business Line : Yet another week of gloom

The week beginning October 6 saw the Sensex start at 12284 points, a good 2 per cent lesser than its previous close. But that was just the tip of the iceberg as far as the losses were concerned. The bellwether index went on to lose over 16 per cent last week.

This apart, the week was also marked by many other events. To begin with, SEBI lifted the restrictions on issuance of participatory notes by foreign institutional investors (FII), which it had introduced last year in October.

This move was widely perceived to bring in more funds to lift the sagging capital markets.

RBI to the rescue

The Reserve Bank of India also came to rescue by reducing the cash reserve ratio by 50 bps initially (effective Oct 11 onwards). This was done to inject Rs 20,000 crore in the financial system. However, none of these efforts seemed to impress the Sensex, which continued flirting with newer supports.

Liquidity problem for financial institutions continued to mar the banking stocks, with some of them losing over double-digits in a week’s time. ICICI Bank continued its losing streak and shed over 27 per cent; HDFC Bank lost 18 per cent. The only saving grace, if we call it that, was State Bank of India, which managed to contain its losses to just 8 per cent.

Tata in news

The week also saw Tata Group capturing headlines. While, Tata Motors after having burnt its finger in Singur managed to find a match in the state of Gujarat for rolling out its Nano plant, the group’s technology arm, TCS made news after it announced the acquisition of Citigroup India Back-Office Unit for $505 million (over Rs 2400 crore).

But no piece of news appeared to bring cheer to the market, which continued to grapple with a fast-spreading liquidity crunch.

This may explain RBI’s move to further reduce the CRR by one percentage point to 7.5 per cent. This was done to inject a further Rs 600 billion ($12.2 billion) into the financial system. The government also cancelled a bond auction to ease pressure on the nation’s cash- strapped banks as the deepening credit crisis had affected lending operations between banks. Despite all efforts by RBI to stabilize condition, FIIs continued to withdraw their investments and their selling amounted to about Rs 4303 crores for the week.

Overall, it was total mayhem in Dalal Street with almost all sectors or sectors reeling under selling pressure. Notably, the weekly drop of 16 per cent in Sensex was also the biggest weekly drop since December 21, 1990. Among index heavy weights all but Ranbaxy registered a weekly loss.

The brewing financial turmoil did not spare the Indian rupee either, which slid to a six-year low, ending its worst week since 1997. After recording a low of 49.26 per dollar in intraday trading, it managed to close at 48.47 per dollar. This unexpected depreciation in rupee eclipsed even the fall in crude oil futures, which is currently trading at around $82 a barrel, its new lows for the year. The only piece of good news came in on the inflation front, which fell marginally to 11.8 percent over the week.

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