Bungee Jumping On The Bourses

HISTORY repeated itself on The Stock Exchange, Mumbai (BSE) when the Sensex fell by over 160 points in one trading session last week. On Monday, October 7,when the index closed at 3,002.86, it had lost 251.87 points over a single week. While technical analysts are calling it the nadir of the fourth cyclical consolidation phase that began in April 1992, the last couple of months have evidently speeded up the slide. Since July the Sensex has actually fallen by over 800 points, thanks substantially to the ’97 Budget.

Even as deeply worried brokers keep their fingers crossed, it seems the ever-widening bottom of the stockmarket has yet to be reached. Says Vivek Patil, a technical market analyst who has devised the software, Advanced Stock Analysis: "This wave would be correcting the dynamic third wave of 34 years from 1958 to 1992.The fourth would technically take a minimum period of four years, but would ideally take up to 13 years."

While the controversy over the State Bank of India (SBI) GDR issue and its pricing triggered the avalanche (see box), the fact of the matter is that the murky political whirlpool has once again succeeded in pulling the markets down under. Even as a former prime minister is ensnared in a series of ugly accusations, the mounting political instability takes a toll on all the sustaining fundamentals of the market. To add insult to injury, there are reports of an economic slowdown, with some industrial sectors having to really rough it out. Real interest rates have touched levels which are too high to discourage expansion. Thirdly, a somewhat unique "investor fatigue" has resulted in a drying up of the primary market. As a result, market sources fear, the Sensex may end up bungee-jumping to a turnaround level of 2,600-2,800.

Till now the saviours of the market, the foreign institutional investors (FIIS) are keenly watching the fate of the court cases involving Narasimha Rao. Says the country manager of an FII: "The billion dollar question is which of the two—the Congress or Janata Dal—will first withdraw support to the United Front Government." Sceptical as always, FIIs are busy booking profits to cut losses before the year ends in December. According to the benchmark Morgan Stanley Capital International (MSCI) Emerging Markets Index, which measures the performance of international securities, India was down by 17.18 per cent in the third quarter ended 30 September 1996, followed only by Pakistan which was down by 23.4 per cent. "There is mayhem going on in the markets," rues a broker.

The more sober ones have just resigned themselves to what one broker called ‘karma’, though not in the classical sense. "The markets are comatose not because of its actions, but because the short and medium term outlook is cloudy," says he. Counters another: "The markets are driven by sentiments. Once the selling spree starts, it picks up its own formidable momentum. In that phase, even no news is bad news." There’s already a lot of bad news. Last year’s liquidity crunch has given way to a glut but the corporate sector is wary of proceeding with its projects with high-cost funds when the future is so uncertain. The domestic mutual funds are cash strapped. Increasing redemption requests from the investors have added to the selling pressure. Corporate performance is expected to take a hit, and the impact of MAT won’t help matters in any way. Even the few who were holding on to their portfolios in the hope of sunnier days have started deserting. According to market players, some of the bad scrips are reportedly being offered at ridiculous prices of less than a rupee.

Indeed, dud stocks have proliferated in the stock exchanges. Over 3,800 scrips out of the 6,690 listed on the BSE are not being traded at all, while 1,386 scrips are being traded below par. More than half the listed stocks at all the stock exchanges are non-performers. Over 2,000 traded companies—several of them blue chips—are changing hands at prices lower than their book value, actually making for excellent bargains. The market capitalisation of the stock exchanges has come down by over 35 per cent during the past 12 months.

As a result, the worst-hit section of the market are the brokers. Survival of almost 60 per cent of the fraternity is at stake. Says M.G. Damani, BSE president: "Stock-brokers need money today. How does the exchange survive if its brokers are in this state?" The president of the Hyderabad Stock Exchange, P.C. Shrimal, went a step further at the recently-concluded stock exchange chiefs’ meet. "If markets continue like this, we may be forced to close shop and sell off the premises," he warned.

That’s an option some brokers, including the big ones, have already considered. The rest are going in for yoga and other stress-reducing exercises (see next story). Udayan Bose, who started CreditCapital, has decided to get out of broking operations. Rumours about Nimesh Shah of Enam Financial Consultants having offloaded a lot of scrips in the past few weeks, as the final act of throwing in the towel, are quite strong on the BSE.

The stock exchange chiefs are however still battling it out. Terming the freefall a national crisis, the heads of 14 exchanges recently put together an eight-point agenda for the Government to inject a dose of life into the market. They want:

What the markets need much more, though, is some sign of stability at the Centre. Once it is clear that this Government is all set to finish its five-year term, remedial measures might just succeed in turning the markets around. Until that happens, brokers may just have to wait for the fog to lift on the road ahead.