Delhi blasts put markets on acid test

Mumbai, Oct 30 | Updated: Oct 31 2005, 05:30am hrs
Stock markets seem to be heading towards a bottomless pit. While the 30-share Sensex of the Bombay Stock Exchange (BSE) had witnessed the fastest fall of over 1,100 points in last 18 trading sessions, the serial bomb blasts in Delhi on Saturday killing more than 60 people have raised worries among market participants about whether it would further intensify.

The Sensex reached all-time high at 8,800 points on October 4 which has come down to 7685.64 level on October 28. Foreign institutional investors (FIIs) have turned net sellers and have withdrawn Rs 3,439.40 crore during this period. The prevailing market trend and weak sentiments have made investors wonder whether the market is in the bear grip.

Rising inflation due to high oil prices in the international market, hardening global interest rate and FIIs withdrawal due to the nearing of financial closure by December-end are considered to be the primary reasons for dampening the sentiments of investors, leading to the market meltdown. However, market experts are hopeful that the sustained slide that has been witnessed over last two weeks, will end soon.

Hemang Raja, MD, IL&FS Investsmart said, We are not at all in the bear phase, in fact I would say that we are going through a correction phase that was long overdue. This correction will put our markets in the correct perspective and it will shortly enter the valuation zone. I think it should reach there when it settles in the 7,500-7,600 range. Investors can invest up to 30-40% of investible funds (cash in hand) in good quality stocks at this point of time.

SP Tulsiyan, an independent investment advisor said, No, I do not agree that we are into long bearish market. Such loose talk because of weak mentality is creating such an impression as such elements get swayed very easily. The second quarter company results have been reasonably good. Nalco has posted its highest ever quarterly profit growth in September quarter. Also the Prime Minister is now talking about 8% growth in gross domestic product. Look at the deals taking place in the India Inc. Bharati Tele is valued at over $15 billion. In fact this is the right time to enter the market.

The correction started after the Union finance ministry and the capital market regulator Securities and Exchange Board of India (Sebi) began cautioning investors to be careful while pumping their money into the market. Added to this, inflation has started rising from September due to high oil prices. The Union government announced on Saturday that it went up to 4.71% as on October 15. FIIs have started withdrawing money for two reasons. One, the reports of India being a costly market has encouraged them to withdraw money from the Indian market and park it in the US and other developed market which they consider more safe.

Investors are also concerned about the Delhi serial blasts. Bombs that went off in Paharganj, Sarojini Nagar and Govindpuri have reportedly killed more than 60 people. This event may also have a negative impact on the market.

The market is also concerned that United Progressive Alliance (UPA) government has slowed down the economic reforms due to political compulsions. The Bihar state Assembly elections are being held. And elections would be held in West Bengal and Tamil in the middle of next year. This has led to the meltdown of BSE PSU and Bankex counters.