Stock market escaped a whipping by closing on I-Day. Some say this could start a bear spell because news of markets falling throws up negative surprises every day.
MUMBAI: The Indian stock market escaped a whipping by taking an off on Independence Day. Will it pay for it on Thursday?
Cassandras abound, with some saying this could very well be the beginning of a bear spell because news of one fund going bust or another teetering on the brink keeps throwing up negative surprises every day.
The global markets came off on Wednesday because the Dow Jones lost 200 points on Tuesday after sales at retail giant Wal-Mart and Home Depot fell.
The index closed just above the psychological 13000 mark that it had breached for the first time in April.
All major Asian indices, barring China, lost 2% or more on Wednesday.
Foreign investors booking profit in emerging markets to offset losses due to the US subprime home-loans bust is creating tremendous pressure, say analysts.
This has beaten down all Asian markets to single-digit returns this year.
The Nikkei lost 2.2% on Wednesday to close at 16,475.61, its lowest since December 8, 2006, which means that its YTD (year to date) returns are in the negative. The Sensex is not far better as it has given a return of 7.6% in 2007.
“The de-leveraging story is starting to spread to more markets,” Laura Ambroseno, currency strategist at Morgan Stanley in London, told Reuters. “We’re at important levels; we’ve had big moves over the last few weeks,” she said, referring to psychological levels such as the pound breaking below $2.00 per dollar, the euro dipping below $1.35 and a 115.00 dollar/yen gradually, slowly but surely coming into view.
When FIIs suffer losses, they increase the risk premium they assign to various markets. They allocate in terms of value to each market.
How much this contracts will decide the liquidity in the market.
“Looking at the kind of funds central banks have been pumping in, the sub prime problem seems to be running deep. In the short term liquidity will prevail over fundamentals in deciding the market valuations,” said Ajay Padval, vice-president, PMS, KR Choksey Securities.
Though the value of such correction might not be very high, it may stretch from three to six months, he said.
A ‘time correction’, which sees the market languishing sideways for extended periods could be more detrimental, say marketmen.
This could dent the business confidence in the corporates, which could reflect in their earnings.
“What happens in the US and European markets on Wednesday would be crucial,” says Deepak Jasani, head of retail research, HDFC Securities.
All of Europe fell, while Dow rebounded in early trades after falling over 40 points in the opening minutes.
Also, Thursday would be important as the effect of redemption pressures on hedge funds after the August 15 deadline could be felt in the markets.
On Wednesday, redemption pressure from global funds led to the Hong Kong’s Hang Seng index correcting over 600 points and the Nikkei 369 points. Indonesia fell to 3-year lows.
“Every quarter these funds face redemptions. But this time people are anticipating more pressure due to the US crisis. But the pressure need not be uniform across markets. I expect Sensex to trade broadly in the range of 14200-15100 for the next two weeks,” says HDFC’s Jasani.
The political uncertainty that has cropped up following the scuffle between the Prime Minister and the Left is also seen as a minor irritant by some players which is keeping large scale buyers away.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}