Stocks

Increased volatility likely to pervade trading rooms

| Updated on January 31, 2011 Published on January 30, 2011

Pedestrians pass the Egyptian stock exchange in Cairo. The country's benchmark stock gauge has plunged 16 per cent in two trading days.   -  - Bloomberg

Egypt factor may keep institutional traders on tenterhooks

Dalal Street may see sharp increase in volatility this week as sellers are likely to scare away buyers or potential buyers. FIIs, their money managers here told Business Line, will step up the unloading spree early this week.

If the Egypt crisis show signs of worsening, Indian equity indices may shed 15-20 per cent.

There could be hardly any player who will resist the selling onslaught if uncertainty and fear over this new development takes over the deep concerns over domestic inflation management.

Market sentiment is likely to be severely downbeat in the near term. For fossil fuel import-dependent Indian economy, the implications of a prolonged trouble in Egypt — an oil and gas-rich and politically influential among the West Asian oil producers — are multi-fold and far-reaching. Any dynamic inflation management attempts and move to return to fiscal consolidation by the monetary and fiscal authorities may become difficult as crude oil prices surge.

Reliance, Gail, ONGC and Essar are entrenched players.

Even for long-term global investors, the Indian growth momentum and the market returns prospects in the next couple of quarters may appear to slump.

The tremors in Egypt (as also the possible negative effects in the whole Arabic-speaking region) have the potential to trigger a big sell-off in India.

When Egypt's benchmark EGX 30 fell last Thursday after protesters thronged the streets, markets across the world did not take serious note of it; key indices in India and Brazil declined on local macroeconomic issues and their impact on forward corporate earnings.

By the end of Friday's session, the Sensex and Nifty recorded over 3 per cent weekly losses – this happened almost without the Egypt factor playing out on Dalal Street.

Monday's trading is likely to show risk-premium and volatility shoot on the equity street. If Egypt situation eases in the first few days of the week without jeopardising the potential blowout of the biggest political and security risk for the emerging markets, risk premiums may tend to come down and hurried retreat to the immediate investment safe-heavens will end.

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Published on January 30, 2011
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