Mar 21, 2008

Sensex takes 951 pts pounding, sinks below 15K

Wall Street's fifth-biggest securities house, Bear Stearns, was sold to JPMorgan for just $240 million (less than Rs 1,000 crore), the kind of money that has changed hands in some land deals in Mumbai.

Singapore bank DBS reportedly told its traders not to deal with Lehman Brothers, fanning speculation that it could be the next casualty.

▪ The world's second-biggest economy, Japan, is not able to decide who will head its central bank at a time when its spiralling currency is unsettling global markets. If Japan slows down, it would be big bad news.

▪ Back home, our trade deficit is hovering around $10 billion a month (thanks to oil, gold and capital goods import), causing an outflow that's making the rupee less attractive.

▪ And on Dalal Street, a portfolio management scheme run by one of the biggest operators is facing big redemptions.


Also, four banks (two foreign and two local) active in the capital market were demanding more liquid stocks as margins from investors who had borrowed to play the market.

These are difficult times for children of the bull market. And there's every hint that the worst is not over for retail investors, institutional players or mighty corporates. Any move by regulators is seen as a sign of desperation.

When the US Federal Reserve had a weekend emergency meeting, the first time in three decades, to cut the interest rate at which it lends to banks and bond houses, many thought that the world's most powerful monetary authority was preparing for some more bad news. All eyes are now on big houses like Lehman Brothers, Morgan Stanley, Merrill Lynch and Citi.

As key Asian markets fell 3-5% and the US dollar sank to record lows against the euro and Swiss franc following the collapse of Bear Stearns, India could not escape the blow.

Much of the slide was caused by the firesale (around Rs 1,000 crore between Friday and Monday) of Bear Sterns' holdings in Indian shares, causing the 30-share Sensex to breach the psychologically crucial 15,000-mark, to close at 14,809.49, down 951.03 points, or 6%, over its previous close. This is the second-biggest fall for the Sensex.

The 50-share Nifty closed at 4,503.10, down 242.70 points, or 5%, over the previous close as FIIs sold Rs 658 crore while Dow opened weak in early trades.

"There could be further dips. On current earning consensus, the market is fairly valued. But this consensus may change for reasons like decline in commodity prices and derivative losses," said BRICS Securities equities head Anand Tandon.

Interestingly, the FII selling, though large in absolute terms, hasn't exactly been brutal till now. Since January, FIIs have sold around $4 billion, over 20% of what they invested in 2007. While FIIs hold around $150 billion worth of stocks and only 3% of that has been reallocated, what has really changed is the sentiment and absence of fresh inflows.  Story