Dalal Street looking at worst monthly fall since Lehman blow

The market would certainly have liked a better start to the year.
The Bombay Stock Exchange barometer has lost 2113.12 points, or 10.3%, so far this month. And with just one more day to go, it seems set to log the worst fall since the height of the financial crises.

In October 2008, after the collapse of financial giant Lehman Brothers, the Sensex had crashed 23.89%.

The Sensex closed Friday at 18395.97, with four out of five stocks on the exchange ending in the red. The Nifty, its counterpart on the National Stock Exchange, closed at 5512.15.

Experts say a number of negatives are already factored in the fall. Still, the market may not be done falling yet.

“Macro issues like inflation, rising interest rates and current account deficit are worrying the investors at this point of time. But much of these concerns have got factored in the recent correction. We may see a little downside of 4-5% from here, before we see buying emerge as valuations would get attractive,” Dinesh Thakkar, chairman and managing director at Angel Broking, said.

Food inflation registered a rise after two weeks of decline. Prices rose 15.57% over the same week last year, according to data released on Thursday.

The Reserve Bank of India had raised interest rates by 0.25% on Tuesday as part of a periodic monetary policy review in order to contain inflation. It had raised the target for inflation from 5.5% to 7% for the financial year and also suggested that the pace of growth will reduce in the next financial year.

The realty index has been the worst performer among the sectoral indices, having fallen 20.2% on fears of interest rate tightening.
Capital goods companies have also been affected by tight liquidity conditions, according to analysts, dropping 15% in January.
Auto, oil & gas and the banking index, all fell in excess of 10%.

The top losers on the Sensex include prominent realty and capital goods names. DLF has fallen 23.58%, while Larsen & Toubro dropped 18.85% during the month.

Foreign institutional investors have been net sellers by Rs4,837.5 crore in January. Support has been scanty from domestic institutions, who have only been net buyers by Rs590.10 crore.

“A lot of hot money had come in during the period from June to October, 2010. India’s underperformance since Diwali may lead to a further $3 billion (Rs 13,500 crore) outflow over the next two months,” said Ambareesh Baliga, vice president at Karvy Stock Broking.

A number of hedge funds have shifted focus from India to the developed markets on the back of underperformance since Diwali, according to market sources. Domestic institutions, especially insurance companies are said to be sitting on cash, according to market watchers.

“If markets do fall further from here, the valuations would become reasonable and attractive for some of the long-only FIIs to again start buying,” said Jitendra Panda, senior vice-president at Motilal Oswal Securities.