Secondary Markets

Whimsical Bears grip Dalal Street

The bears are whimsical. You can never take them for granted. If you take a look at the markets over the last two weeks you would tend to agree to this point of view. Spurred by surging global oil prices and its repercussions on domestic petroleum product prices, hike in US interest rate, PM’s health, and profit warnings by US technology companies, the domestic bourses lost their nerve only to dance up and down. And that of 22^nd September, the Friday’s fall was worst ever blow in the Dalal Street history. It was even more severe than the March–April 2000 crash. The wave of weakness started off in technology laden Nasdaq, went on to hit every Asian markets (Indian markets were not an exception), before playing havoc with European markets.

It all begun when the interest rates in US were hiked and concerns of slowdown in US economy started rising. Compounding this was the global oil price hitting a ten-year high. From a low of about $10 per barrel in December ‘98, the global oil price peaked to over $37 per barrel on 18^thSeptember ’00. The political tension among the Middle East countries only added to the woe. All this left the markets across the globe reeling.

While the impact of surging oil price was already strong, the profit warnings by Chipmaker Intel was yet another blow. The news not only affected the sentiments in Nasdaq, it resulted in a subdued trend on the Indian bourses throughout the week. The fall being led by technology, media and telecom stocks. Old economy counters across steel, cement, pharma, FMCG supported the fall. Apart from the above realities, the major fall in the market cap of new economy stocks was on account of their large outstanding positions and Financial Institutional Investors turning net sellers. By Friday, the 30 share Bombay Stock Exchange (BSE) sensitive index plunged nearly 530 points to 4032 points - near its four-month low of 3920.

For the following week, the probability of market opening upside to the downside was quite high for the reason that by Friday, operators had already covered their short positions and the government postponed their decision on oil price hike. That’s exactly what happened. The Indian markets opened firm but remained highly volatile through out the week. If Intel was for the previous week, it was profit warning by Apple Computers and Eastman Kodak that gave a blow to the market sentiments. So much so that a number of prominent companies like auto major Telco, cement major ACC, Tata Tea, telecom major MTNL, and consumer goods major Hindustan Lever hit their yearly lows. Technology stocks witnessed bargain hunting and were responsible for the Sensex close with a gain of 58 points for the week.

With a spate of bad news hitting the market at one time, the investors interpreted things above order. The much-awaited rise in price of petro products and the corporate results will only put an end to this uncertainty that’s ruling the market sentiments. One thing is clear. India is no more a closed economy and immune to global tides.

Karthik Raj

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