Manic Monday: Why did the markets fall? - Hindustan Times
close_game
close_game

Manic Monday: Why did the markets fall?

Hindustan Times | ByMC Vaijayanthi, Mumbai
Jun 10, 2008 08:39 AM IST

Worries of a prolonged bout of inflation & the possibility of a few quarters of lower growth are catching up with the Indian markets, reports MC Vaijayanthi.

Worries of a prolonged bout of inflation and the possibility of a few quarters of lower growth are catching up with the Indian markets and re-rating Indian equities.

HT Image
HT Image

On Friday the world had witnessed a $9 spike in oil prices, triggering a 395-point drop in the Dow Jones Industrial Average index – after that a huge fall on Asian Indian bourses was a foregone conclusion. On Monday the BSE Sensex slipped below the 15,000 mark for the first time since March and the NSE Nifty fell to its lowest point since March 17.

Hindustan Times - your fastest source for breaking news! Read now.

The crude oil’s jump to $139 a barrel on Friday was coupled with announcement of higher unemployment rates in USA that data brought down the Dow Jones index by 395 points in the United States, it was clear it would cast a shadow on Asian and Indian markets Monday morning. The crude prices had jumped $16 per barrel in two days and predictions were there for it to touch $150 per barrel.

“For the first time in four years the market is not able to factor in the level of growth in corporate earnings and also take a view on the earnings estimates for the year 2009-10,” said Amitabh Chakraborty, president of equity at Religare Securities. “A sharp spike in oil prices stepped up fears of uncontrollable high inflation, already at 8 per cent for India and predicted to rise to 9.5-10 per cent, given recent fuel hikes”, said Amar Ambani, vice president – research, India Infoline.

Sensex touched the day’s low of 14,846.18, before recovering to close the day at 15,066.10, restricting the losses to 3.5 per cent. Nilesh Jasani head of equities at Credit Suisse reiterated his year-end target of 13,000 for the Sensex.

The bearish view emerges from the fact that India has to battle several negatives at the same time. High oil prices, increasing inflation leading to higher interest rates, slowdown in earnings growth and being at the wrong end of policy cycle as the country moves towards an election year. “Markets are still not pricing in lower earnings growth. We could be down to flat or single-digit growth in earnings. The global cyclical downturn in itself was bad enough, now we have to contend with record oil prices too,” said Jasani.

As foreign investors bought into Indian stocks based on the growth story, the inability to judge earnings growth had led to selling even by those investors who had stayed invested in the Indian markets for long. The falling markets have also kept retail investors away further adding to liquidity woes.

Unlock a world of Benefits with HT! From insightful newsletters to real-time news alerts and a personalized news feed – it's all here, just a click away!- Login Now!
Stay informed on Business News along with Gold Rates Today, India News and other related updates on Hindustan Times Website and APPs
SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Thursday, March 28, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On