The tsunami in the US financial markets following the stunning sell-out of the 94-year-old Merrill Lynch and the bankruptcy of Lehman Brothers devastated the Indian stock markets on Monday.
The Bombay Stock Exchange Sensitive Index (Sensex) saw an intra-day fall of 850 points. Although the index recovered to end the day at 13,531, a fall of 470 points over Friday’s close, it is clear that the “once-in-a-century” financial crisis, as former Federal Reserve Chief Alan Greenspan described it, could continue to destroy more shareholder wealth.
There were only three gainers among the Sensex stocks — Maruti, HDFC and ACC. The smaller indices took it on the chin with both the Nifty Junior and the Nifty Mid Cap falling nearly 5 per cent. Stocks recouped some of their losses after China cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside.
That the future is tense became evident when US stocks tumbled in initial trades yesterday as the bankruptcy of Lehman Brothers Holdings Inc fuelled speculation that turmoil in the credit markets will deepen. Lehman plunged 94.19 per cent and AIG retreated 46.87 per cent, while Bank of America slumped 18.41 per cent.
Stocks fell across Europe and Asia, the dollar lost the most against the yen in a decade and treasuries surged. The Standard & Poor’s 500 Index declined 36.50 points, or 2.76 per cent, to 1,222.00 at 12 midnight (IST) in New York. The Dow Jones Industrial Average sank 279.03 to 11,142.96.
Their losses were tempered because more than half of the Dow’s 30 companies hadn’t started trading yet on the New York Stock Exchange floor. The Nasdaq Composite Index decreased 47.47 points to 2,213.8. Europe’s Dow Jones Stoxx 600 Index lost 3.47 per cent.
| GLOBAL INDICES TAKE A DIVE | |||
| July 15 | Net Chg# | % Chg# | |
| Dow Jones* | 11,142.96 | -279.03 | -2.44 |
| FTSE 100^ | 5,204.20 | -212.50 | -3.92 |
| Jakarta Composite | 1,719.25 | -84.81 | -4.70 |
| Taiwan Taiex | 6,052.45 | -258.23 | -4.09 |
| Straits Times | 2,486.55 | -84.12 | -3.27 |
| SET | 642.39 | -11.95 | -1.83 |
| July 12 | Net Chg# | % Chg# | |
| Hang Seng | 19352.90 | -35.82 | -0.18 |
| Shanghai Composite | 2079.67 | 0.69 | 0.03 |
| Nikkei 225 | 12214.76 | 112.26 | 0.93 |
| Kospi | 1477.92 | 34.68 | 2.40 |
| ^at close; * as on 12 midnight (IST); # over previous close | |||
Milind Barve, MD, HDFC AMC, said: “The collapse of some big investment banks is obviously disturbing, but the bigger concern for the market is the news that’s not yet out and what will happen if some of the other banks in distress aren’t bailed out.”
The possible liquidation of the Lehman Brothers portfolio in India is likely to trigger further selling by foreign insitutional investors (FIIs) who have already pulled out $7.79 billion since the start of 2008.
Nilesh Shah, deputy MD, ICICI Prudential AMC, said: “The sentiment is obviously still negative with a billion dollars having flowed out in a single week. And no one has the courage right now to invest, so we’re probably in for some more pain.”
According to Rashesh Shah, chairman of Edelweiss group, “The problems both globally and at home have resulted in liquidity and sentiment being badly affected. The market will take time to consolidate and it could take another three to four quarters for the mood to recover.”
Trading volumes on both the major bourses on Monday were below the average levels seen over the past three months. The BSE clocked volumes of Rs 4,485 crore and the National Stock Exchange reported volumes of Rs 11,921 crore.
Vallabh Bhansali, chairman, Enam, however, is more optimistic. He said the fall of celebrated institutions like Lehman Brothers could probably signal the bottom of the market. “For the Indian markets too, the downside may now be limited with valuations having turned more attractive,” he said.
At current levels, the Sensex trades at just under 14 times estimated FY09 earnings. While that may not appear expensive, the concern is that earnings growth could slow down in the current year and in FY10 with interest rates and inflation still remaining high.
The fall in the prices of commodities, said analysts, could mean a lower growth in profits for some of the bigger commodity players. However, falling crude oil prices will help the macroeconomic situation. Even at these valuations, India is still trading at a slight premium to other markets in the region; Korea, for instance, trades at just under 12 times and Taiwan trades at just above 10 times.
| RUPEE MOVEMENT (SEPT 15) | |
| Prev Close | 45.73 |
| Open | 45.54 |
| High | 46.07 |
| Low | 45.52 |
| Close | 46.06 |
| OIL RATES ($/BARREL)* (SEPT 15) | |
| Brent | 93.92 |
| % chg# | -5.49 |
| NYMEX | 96.75 |
| % chg# | -4.43 |
| * as on 2330 hrs (IST) # over previous close | |
India’s market capitalisation now stands at Rs 44.87 lakh crore, 40 per cent below the peak touched in January this year. India remains one of the worst performing markets both in the region and in the world having given up 33 per cent since January 2008. Only China, among the bigger markets, has turned in a worse performance.
Reliance Industries dropped 2.4 per cent to its lowest in two weeks and ICICI Bank fell 3.9 per cent, to its lowest since July 29. Satyam Computer had its biggest drop in more than five years — by 9.5 per cent to Rs 368.50.
Satyam led other software developers lower. Tata Consultancy Services and Infosys fell 5.9 per cent to Rs 762.80 and 4 per cent to Rs 1,578.15, respectively.
