Indian stocks gained on Monday, clawing back after three straight days of declines, but lagged other key regional Asian indices on muted trading because of a local holiday in Mumbai, home to the country’s two largest stock exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Asian markets rebounded on optimism that a deep financial crisis had been arrested after the US central bank helped buffer its market, the world’s largest, with a 50 basis-point cut in discount rate, or the rate at which it lends to banks, on Friday. The move was prompted by growing concerns that US homeowners would default on mortgages and trigger a global meltdown.
BSE’s benchmark index Sensex gained about 538 points early during the day, but slipped on the back of poor trade volumes and closed at 14,427.55, up 286.03 or 2%. NSE’s Nifty index closed at 4209.05, up 101. At around 8pm IST the Dow Jones Industrial Average was 2.12 points, or 0.02%, down from its previous close.
“The Federal Reserve’s Friday announcements were an assurance to the mortgage lenders in US that the regulatory authority could stand support in the worst case scenario,” says Nimesh Kampani, chairman of JM Financial Ltd, the Mumbai-based boutique financial firm that was erstwhile partner of Morgan Stanley in India. “However, this does not resolve the problems in the immediate future. Technically, the Sensex could lose another 1,000 points in the short term if the global cues are negative.”
In Mumbai, many financial institutions and all government enterprises were on holiday, as the resident Parsi community celebrated Navroz, the new year of the Zoroastrian calendar. According to analysts, the holiday and fears of a brewing political crisis in India kept trading volumes low. The cash turnover on BSE was Rs3,819 crore against Rs5,320 crore on Friday. The volume in the futures and options markets at NSE was a mere Rs40,075 crore compared with more than Rs64,879 crore reported on Friday.
All major Asian markets shrugged off last week’s continuous falls and made sharp gains on Monday. Hong Kong’s Hang Seng index went up by 1,208.5 or about 6% to close at 21,595.63. The Jakarta Composite Index in Indonesia, which fell more than 15% in the last three trading sessions, was the biggest gainer in the camp, up 7% to 2,041.58. While the representative indices of China, Taiwan, South Korea and Singapore also spurted more than 5%, those in Australia, Malaysia and Thailand added more than 4%. The Japanese Nikkei gained 3% from its sharp fall on Friday.
“Many market players, including the Life Insurance Corp. of India (LIC), one of the largest domestic investor, were on holiday. So one has to watch out for Tuesday’s trading session” to gauge the mood of the market, Kampani says.
Domestic concerns such as a key ally—the Left Front—withdrawing support from the ruling coalition government at the Centre—the United Progressive Alliance—over the signing of a nuclear deal with the US, created uncertainty in the market, traders say.
“At the moment, nobody expects the Central government to fall apart. However, the next one week is crucial to see how political ties shape up,” Kampani says. The worries in the US subprime market are not over, he adds.
A senior executive at ICICI Securities Ltd, who did not wish to be named, says many big players in the market including mutual fund houses and some hedge funds are in a wait-and-watch mode and some of the institutions are still holding neutral because of the holiday season in Europe.
Sudip Bandyopadhyay, chief executive of Reliance Money Ltd, the brokerage arm of Anil Dhirubhai Ambani Group (ADAG), and another fund manager at Kotak Mahindra Asset Management Co. Ltd, also say the Indian market was a bit subdued on Monday due to many absentees. “Many investors are still” cautious, says Bandyopadhyay. “Both the uncertainties—over the US mortgage market and the internal political situation in India—are reflected in investor sentiments,” he adds.
Indian investors have not much to worry in the mid-term, says Bandyopadhyay. “Investors across the globe are expecting more skeletons from the subprime closet. However, the announcements made by the US Fed on Friday promise that there will be equally strong relief measures from the authorities. This is a positive sign to global equity markets. Also, India is no longer just another riskier market for a global investor...India will continue to be in the portfolio of every sensible global fund manager,” he adds.
As per the BSE website, foreign institutional investors were net sellers of stocks worth Rs649 crore. This comes after two days of selling by these institutions of equity worth more than Rs6,600 crore.
Interestingly, a Citigroup research report released on Monday on Asian markets found that there has been very little redemption from offshore Asian funds in the first two weeks of August, though foreign portfolio investors had heavily sold their equity assets in many Asian markets during this period. The net outflow from offshore Asian funds was just about $74 million (Rs308 crore) in the first two weeks of this month. India and China topped the chart on net outflows, while Hong Kong and Korea were the only two markets that saw net inflows during this period.