Mumbai: Fund managers and market analysts say the worst is yet to come for the Indian market and that the Bombay Stock Exchange’s (BSE) benchmark index, the Sensex, may not only breach the bottom it touched in March, but actually lose up to 15% from its current levels. Some of them say the market has definitely entered a bear phase.
The 30-stock Sensex plunged 4.6% or 726 points in intra-day trading on Monday to 14,846.18, perilously close to this year’s low of 14,677.24, which was reached in mid-March, before recovering to close at 15,066.10, down 3.3%.
The National Stock Exchange’s broader 50-stock Nifty index breached its 2008 low of 4,448.50 points set on 22 January, as it slid to 4,411.60, in intra-day trade. The Nifty closed at 4,500.95, down 2.7%.
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“The sentiment is absolutely negative,” says Hitendra Dave, co-head of global markets in India for The Hongkong and Shanghai Banking Corp. Ltd (HSBC).
Nilesh Jasani, director (equity research) at Credit Suisse Securities (India) Pvt. Ltd, says there are too many factors inducing bearishness on Indian equities, which makes a recovery in 2008 unlikely. He continues to maintain the year-end target of 13,000 for the Sensex.
INDIA HIT WORST (Graphic)
Amar Ambani, head of equity research at India Infoline Ltd, a Mumbai-based brokerage, also voices the same sentiment when he says: “If wediscern the macro and political situation, then there is enough evidence to believe that we have entered an intermittent bearish phase.”
Sid Khanna, chairman and managing director of India Equity Partners, a Mumbai-based private equity fund, goes even one step ahead and says the bearishness could last longer, with an upward trend emerging only after the general elections in 2009.
The most important factor that will influence the Sensex in the short term is the price of crude oil, the movement of which is “beyond comprehension”, according to Sanjeev Prasad, co-head of the institutional desk at Mumbai-based Kotak Securities Ltd.
A potential recovery from these lows would be strongly linked to the trend in global crude oil price, he says.
Officials from the Group of Eight (G-8) developed countries, along with China, South Korea and India, that together account for 65% of the world’s energy consumption, gathered in Japan on Sunday, to urge oil producers to boost output through greater investment and provide more transparency on oil supply data.
The slump across Asian markets on Monday was no surprise after the US benchmark index Dow Jones Industrial Average fell 394.64 points, or 3.13%, its highest in a single day in 15 months, on Friday’s trade, fuelled by record oil prices and a 22-year high jump in unemployment rate in the world’s largest economy.
Most Asian markets were deeply down, but the Indian indices were the worst hit. Among markets, only China has fared worse than India this year.
Japan’s benchmark index Nikkei shed 2.13% while Singapore’s Straits Times index lost about 2%. South Korea’s Kospi lost 1.27%. The Chinese markets, on the other hand, closed flat and in Hong Kong, the Hang Seng index gained 0.6%.
The Sensex is now down close to 29% since its January high. The index lost around 31% between 10 January, when it reached its lifetime high of 21,106.77, and mid-March, but then recovered 20% to regain some ground. But the trend has since reversed and fund managers say the index will soon fall below its March level.
The index returned at least 45% to investors in 2007 and 2006.
Foreign institutional investors (FIIs), the main driver of the Indian stock market, hammered stocks on Monday. They were net sellers to the tune of Rs1,344 crore (about $320 million) in the cash markets, according to provisional data from BSE. FIIs have net sold Indian equities worth $4.55 billion in 2008 so far, after net buying a record $17.4 billion last year.
The BSE’s Dollex-30, the US dollar-denominated version of Sensex, closed at 2,905.15 after plummeting to 2,839 intra-day. The Dollex is trading well below its earlier low of 2,978.58 achieved on 17 March.
The rupee lost 21 paise to close at 42.87/88 against the dollar.
Some technical analysts see 15,000 for Sensex and 4,500 for Nifty, as crucial support levels. These supports could be broken if global markets continue to be bearish this week.
“This doesn’t mean that hell will break out once these levels are crossed,” said technical analyst Deepak Mohoni, who does not neglect possibilities of a bounce back, similar to that in March. Mohoni is one among the few analysts who are still optimistic about the market movement.
Bounce or no-bounce, “the amount of leverage” that was available until early 2007, will never resurface in the near future, said Dave of HSBC. The markets are living in fears of a potential monetary tightening by the banking regulator, he said. Late on Monday night, US markets opened weak after investment bank Lehman Brothers announced that it expects to make a loss of $2.8 billion (Rs12,012 crore) in the second quarter. At 9.30 India time, the Dow Jones Industrial Average had gained 76.37 points to 12,286.18.
That could mean more bad news for Indian markets today.