Mumbai: Asian stock markets tumbled on Tuesday as new shocks to financial confidence overwhelmed hopes that new American President Barack Obama would move quickly to limit the damage to the world economy.
Royal Bank of Scotland Plc. said on Monday that its losses in 2009 could reach $41 billion (Rs2 trillion) and the UK treasury announced another bailout package for banks in that country. Banks led the fall across Asia.
India’s two main stock market indices—the 30-share Bombay Stock Exchange Sensex and the 50-share National Stock Exchange Nifty—fell 2.45% and 1.74%, respectively.
The Sensex closed at 9,100 while the Nifty ended trading at 2,797. Shanghai was the lone major regional stock exchange to post gains. European markets were directionless.
The global stock markets had rallied from the begining of the new year in what has widely come to be known as the Obama rally. But this rally has been losing steam following a string of weak economic numbers from around the world. The US markets—which were closed on Monday for a national holiday—opened on a pessimistic note on Tuesday a few hours before the Obama inauguration in Washington, DC. The Dow Jones Industrial Average was down 170 points in early trade.
Reuters quoted Yoshinori Nagano, chief strategist at Daiwa Asset Management, as saying, “For the next two to three months, hopes for economic steps by Barack Obama will surface from time to time... But once equity markets recover some ground on those hopes, they are bound to face grim reality again.”
Obama’s economic team has vowed to make its bailout funds work harder to get credit flowing again to cash-starved American consumers and companies and is expected to announce changes to the second half of the $700 billion bank rescue scheme put in place by the outgoing Bush administration. The new US President is also working with lawmakers to launch by mid-February a two-year $825 billion fiscal stimulus plan of tax cuts and extra spending.
Governments around the world have committed trillions of dollars to fiscal stimulus packages and bank rescues in response to the crisis that has spiralled out of control, as what began as a US housing slump has grown into the world’s worst economic downturn in decades.
In India, the sharp 3.84% drop in Reliance Industries Ltd, the largest constituent stock in the Sensex, after Reliance Natural Resources Ltd asked the Bombay high court not to lift the stay on the sale of gas from the Krishna-Godavari basin, also pulled down the index on Tuesday.
“Considering the expected decline in corporate earnings and slower economic growth of 6-7% in 2009, we expect Sensex to remain in the 8,500-10,700 range,” said Chetan Majithia, head of equities at Crisil Research.
Corporate earnings announced so far for the quarter ending December have been above expectations, and some of the brokerages are taking positive cues from this.
“Markets call for yogic patience, but we are bullish on India in an Asian regional context,” said Japanese investment bank Nomura Securities, in its recent India strategy report. “The market is inexpensive despite earnings risk,” the Nomura report said.
JPMorgan’s Asia strategist Adian Mowat recently upgraded India from underweight to neutral, joining a league of foreign brokerages analysts, predicting near-term upside for India’s bellwether index, betting on a decline in interest rates.
On Tuesday, Indian stocks saw heavy selling by foreign institutional investors (FIIs), mainly by a UK-based fund in bank stocks, said brokers. Metal and real estate stocks also slumped on Tuesday. According to Bombay Stock Exchange provisional figures, FIIs sold Indian equities worth Rs308.15 crore net of buying on Tuesday.
So far in 2009, FIIs have taken out Rs2,964.19 crore from the Indian markets.
Reuters’ worldwide bureaus contributed to this story.