Desperate measures fail to shore up the yo-yoing Sensex
On September 17, the Sensex closed at an eight-year low of 2681 and despite the government promising a slew of measures for fiis, recovered marginally to 2761.66 on September 20, against 3183.63 on September 10, the day before the wtc attacks. Quipped a broker: "It’s as if our wtc has been hit."
Says Vetri Subramaniam, senior VP, Kotak Mahindra MF: "This may defy logic but it perhaps has to do with the adept handling of the crisis in the United States while we are still debating measures." However, a careful analysis shows the market wasn’t sold down, but was marked down. Says Bhupinder Sethi, fund manager at Dundee MF: "It’s not so much selling as the sentiments. It’s been an extremely shallow market. The attacks were the icing on the cake."
The fact remains that markets lost a chunk of 21 per cent in four trading sessions even as fiis sold about Rs 100-150 crore a day, hardly dramatic against an investment of nearly Rs 12,000 crore between January and September 2001. Darshan Mehta of Moneypore explains that the ban on badla trading has severely affected liquidity. Hence, even small sales damaged the sensex as there are no buyers.
Brokers felt that some mutual funds had cash positions and since the markets were hovering at record lows, they extinguished their cash reserves to buy into the market. Sources said there was heavy buying by uti, licmf, Alliance, Prudential and Pioneer iti, with inward-looking stocks like fmcg, pharma and banks preferred.
But apprehensions remain. The popular Morgan Stanley Country Index for Emerging Economies has halved India’s weightage to 6.5 per cent in four months. In November it is expected to go down further to between 4 and 5 per cent. Add to this the increased possibility of a US recession and higher oil prices and the situation can be volatile.
As for the rupee, its losses against the dollar were much less compared to those against the euro or the pound sterling. "The rupee was headed lower regardless of the US attacks," says Jamal Mecklai of Mecklai & Mecklai, "but when a hot point is created, the instability is speeded up. Our money position is comfortable with $45 billion in fdi, ecbs, external debt and portfolio investment. So the rbi can keep intervening to keep the rupee at Rs 48. If the rupee is weak, exports benefit but then the fiis will want to run away. So we need to have buoyant markets to retain them." Subramaniam too expects it to stabilise in the range of 48.50-49.00, but says that it can always overshoot with the eruption of hostilities by the US in the Afghan region.
In any case, the RBI followed a policy of benign neglect preferring the rupee to lose some ground.
Charubala Annuncio and Arijit Barman