Rising prices, that had started sending shivers in the economy, since the beginning of the year, have now started manifesting themselves in the stock market. However, the fact that the rising inflation numbers have now crossed the 13-year peak has added a new flutter.
The past four trading sessions since June 17, 2008 have seen Rs 3.18 lakh crore worth shareholder wealth being wiped away on the BSE. The total BSE M-Cap declined to Rs 48.33 lakh crore on June 20, 2008 from Rs 51.52 lakh crore on June 17, 2008.
DR Dogra, ED, CARE said, “The market continued its downward journey since Wednesday last. The reason for this continuous fall can be attributed to spiralling crude prices which are responsible for higher inflation. The widening deficit, higher interest rates and depreciating currency are elevating concerns that economic growth may slowdown.”
It is no wonder then that sectors related to interest rates and overall economic growth have been the ones to depict a higher fall as investors moved out at a rapid clip. The banking sector is amongst the top sectors to record a loss of market capitalisation.
Trade experts reckon that with rising inflation, the central bank is likely to bring in stricter norms and this may, on one hand, squeeze bank margins, and impact the overall credit offtake. The banking sector has seen a near 10% erosion in market capitalisation over the past four trading sessions.
“From a fundamental perspective, the rising yield of the bonds indicates that the banks will have to take marked to market losses on their investment portfolios. Bank stocks and real estate stocks will take a further beating,” adds VK Sharma, whole time director and head of research with Anagram Stokbroking.
The construction sector, metals (especially aluminium), shipping and engineering sectors have witnessed an erosion that ranges from 7-9%. Here again the fear of an economic slowdown impacting earnings, has been the major cause for investor retreat.
For some cases, like construction and engineering, the impact of rising input costs eating into margins has also added to the gloom. Construction companies have seen input costs rise by 20% over the past six months, says a trade expert and are facing severe cash crunch due to paucity of funds.
However, the fertiliser sector has recorded the maximum erosion, and companies like Chambal Fertilisers lost a whopping Rs 456 crore from its m-cap, a decline of 11.98% to Rs 3,348 crore over its June 17, level of Rs 3,804 crore.
