Stock Market Jigs To Vajpayee’s War Tune

Updated: May 26 2002, 05:30am hrs
If there’s anything that upsets the stockmarkets the most, it is uncertainty. The markets are quite capable of swallowing bad news, but what they clearly are averse to is a prolonged lack of clarity on any front—be it the political situation or even economic. Hence, what was witnessed all of last week on the country’s stockmarkets was a reflection of this aversion to uncertainty; this time caused by fears of an armed conflict breaking out between hostile neighbours India and Pakistan. After the May 14 massacre in Jammu, there were clear signals that India would not let things drift this time round. Prime Minister Atal Behari Vajpayee’s usage of the word pratikaar to mean retaliation of some sort against the terror attacks and the proxy war sent shivers down the collective spine of the markets from the middle of the week before. What was seen the last week (beginning May 20) was a continuation and acceleration, in fact, of that downward slide in the markets.

However, the best news for the stockmarkets, perhaps aptly, was saved for the last trading day of the week, Friday, when, after eight straight sessions of the benchmark 30-share BSE Sensex heading south, the markets recouped sharply on May 24, and moved up a hefty 141.57 points as traders, institutions and foreign institutional investors resumed the buying party and pushed stock prices back up. On balance, therefore, after a terrible week when the Sensex lost 219.65 points in four straight trading sessions, the index finally closed the week at 3255.62, down only 78.08 points compared to the previous Friday’s close of 3333.70. Not a bad show for a week dominated by the clouds of war, and intense rhetoric from both sides of the border.

Just as Prime Minister Vajpayee’s pratikaar word led to a melting of the markets earlier, it was Mr Vajpayee himself who acted as a virtual balm to the battered sentiment in the end. His comment in Kashmir on Thursday that he hoped “lightning would not strike” was seen by optimism-hungry marketmen as meaning that India and Pakistan have receded from the brink for now. The market now feels a full-fledged war may not be an immediate possibility. Hence, the celebration on Friday, where most bellwether stocks moved up smartly, propped up by strong buying support across the board.

The Financial Express had, on May 23, reported that the market was ready for an upturn the moment the war clouds receded. And that is exactly what happened once the prime minister sent out the right signals. Said Rajesh Jain, executive director, Pranav Securities: “The market has slid largely on war concerns and the fluid political scenario. The valuations are going very cheap currently and once the war fears recede, there would be a clear upturn.”

The week began on a jittery note with the business and financial community discussing war all round. Consequently, the equity markets also bore the brunt, and stock prices were battered down badly. Monday’s trading ended with the Sensex down by a substantial 50.95 points, as pivotals were beaten down in the market by speculators. But while the Sensex fell 51 points, the fall was much more intense at the Karachi stock exchange in Pakistan, where the index fell by a whopping 7.5 per cent, or 132 points. In Mumbai, the decline was pronounced in stocks like Satyam, GlaxoSmithKline, Hero Honda, Bajaj Auto, HPCL and others. However, IPCL and Shipping Corporation bucked the trend on wholly different reasons. IPCL had just come out of a major disinvestment decision, wherein frontline corporate group Reliance picked up a 26 per cent stake in the company after putting in a hugely aggressive bid of Rs 231 per share, which left other bidders Nirma and IOC far behind. This was also Reliance’s maiden success in the disinvestment game. The mandatory open offer which was to follow led speculators and investors to build positions in the stock immediately after the disinvestment was announced.

On Tuesday, too, the market continued its southward journey, but to the horror of the marketmen, the loss was most pronounced that day. The Sensex shed a hefty 96 points as war fears intensified. A ray of hope, however, was the fact that late trades saw some scattered buying as a result of which the fall in the Sensex was cushioned somewhat. During the day, in fact, the Sensex had slumped 154.86 points but the late-session buying led to some losses being recouped, leading the Sensex to close 96 points lower than the previous day’s closing.

The major losers in Tuesday’s trading were Reliance Industries and Reliance Petroleum, ITC Ltd and Infosys, all Sensex heavyweights, whose declining prices led to the index itself taking a body blow. The loss was also exacerbated by the fact that international rating major Standard & Poor’s (S&P) saw India’s sovereign rating being pushed closer to the edge following escalating tensions with Pakistan. At that point, chartists saw technical support coming into the market at around 3,150 levels, something which was evident on Tuesday, when after plunging below that level, the Sensex did bounce back and close the day at 3186.53. “The second level of support is expected to come at 3050,” chartist Hitesh Sheth of broking firm Prabhudas Lilladher said. Sensex heavyweight Hindustan Lever was responsible in some way for cushioning the Sensex fall as well on Tuesday, with the stock falling only Rs 2.30 as the company announced a revamp of its bonus dividends scheme.

Wednesday’s trading saw the Sensex fall only 11.04 points, as it became clear that there was some buying support and strength within the markets. Bargain buying at the existing low price levels also contributed to the relative stability in stock prices on that day. Thursday, however, saw the market fall once again, after the prime minister again sent out war signals with his “decisive battle” statement in Kashmir. The death of moderate Kashmiri leader Abdul Ghani Lone just as Mr Vajpayee began his tour of the troubled state added to the nervousness in the market. Consequently, the Sensex took a 61-point hit on Thursday, and touched its six-month low at 3114.05. Lower-than-expected results from ITC Ltd also added to the decline, as concerns were expressed about the falling volumes in the company’s cigarettes business. But after market hours, the prime minister’s soothing statement that he did not see lightning striking immediately had a calming effect, which was evident all through Friday’s trading.

During the week, foreign institutional investors were net sellers in the equities market, barring Wednesday, when they pumped in a net Rs 18.60 crore. On all other days, FIIs sold more than they bought, with the highest net sales being logged on Thursday, at Rs 46.80 crore. Domestic mutual funds, however, remained optimistic on the market throughout the week, buying every day and helping in cushioning the fall as well. During the first four days of the week, domestic mutual funds pumped in net purchases of Rs 135.79 crore.

For now, things seem under control. With Mr Vajpayee going for a well-deserved holiday, the market has heaved a sigh of relief that a war will not happen right now. Chartists have, however, begun debating whether the Friday upturn was just a pullback rally or a sign of stronger and better times in the coming week. Dealers are, however, adopting a cautious note, saying unless the war clouds recede totally and fully, a sustained inflow of funds from institutional investors may not happen. Said Sheth: “The next resistance at the upper level would be at 3300. If the market rallies for the next three sessions, that would mean Friday’s gains are not a mere pullback rally, but a sign of better times.” And better times are exactly what battle-scarred marketmen would be hoping for.