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Stocks plunge: Where are we headed?

Stocks plunge: Where are we headed?
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First Published: Fri, Aug 05 2011. 05 18 PM IST
Updated: Fri, Aug 05 2011. 05 18 PM IST
Mumbai: By the end of the day, Indian markets had slipped only about 2%, recovering from an intra-day low as global leaders called for talks to stave off another slowdown. Read more...
Sensex: 17,305 –2.19%
Nifty: 5,211 –2.26%
While that fall may not be as deep as witnessed in other markets, policy makers are taking it seriously. While Securities and Exchange Board of India chief UK Sinha said the market watchdog was “closely” monitoring the situation, RBI deputy Subir Gokarn indicated that the global macroeconomic situation could change the central bank’s policy stance.
“Fears of global recession have just re-emerged. I suspect that when we next meet in September, it will be an issue,” Subir Gokarn, who handles monetary policy at the central bank, told reporters on the sidelines of an event in the southern city of Hyderabad.
But we all know what happened the last time central banks opened their purse strings. Read more...
The situation might not be that bad for the Indian economy which is relatively insulated. There is even a positive spin – lower crude oil prices actually boost the economy in an energy dependent country.
But as the last financial crisis showed, equity markets around the world move in tandem. Foreign mutual funds are short on cash and typically withdraw money from across the world in these situations. Indian stocks have now fallen nearly 12% from the last peak, which is much more than a correction.
Some say this is a buying opportunity citing attractive valuations, but then those valuations depend on earnings which are in the danger of being downgraded. Others say that this is the beginning of a bear run - but then yesterday’s sell off in the US didn’t have any particular trigger. And the markets had already discounted the slowdown quite a bit.
It’s a mug’s game trying to predict which way the market is headed, especially in the short-term. No one is really sure whether this is just temporary panic or the beginning of a bear phase. The July jobs data to be released later today in the US might provide some clues.
Some data points:
Commodities and Anil Ambani group company shares led the losses in the Nifty shares. Reliance Infrastructure and Cairn India plunged more than 7% each on fears of tight liquidity and low commodity prices.
Reliance Infrastructure: Rs 524 –7.4%
Cairn India: Rs 285 –7.2%
Reliance Communications: Rs 92 –6.7%
Sterlite Industries: Rs 142 –5.8%
At the sectoral level, information technology, real estate and power stocks led the losses on the BSE. All BSE sectoral indices closed the day with losses.
BSE IT: 5,459 –3.9%
BSE Realty: 1,888 –3.1%
BSE Power: 2,343 –3.1%
Information technology stocks witnessed the brunt of the sell-off. All stocks in the BSE IT closed down on fears that increasing uncertainty in the global economy might have a negative impact on the deal pipeline. Blue-chip stocks Infosys and TCS lost over 3% each.
Mphasis: Rs 422 –5.1%
Tech Mahindra: Rs 731 –5.1%
HCL Technologies: Rs 444 –4.8%
Infosys: Rs 2,590 –4.4%
TCS: Rs 1,056 –3.7%
Meanwhile, stocks of state owned oil companies rose on prospects of low under-recoveries. Brent crude fell below $110 to $108 a barrel on speculation that the weak US economy might reduce demand for energy products.
Meanwhile, stocks of state owned oil companies rose on prospects of low under-recoveries. Brent crude fell below $110 to $108 a barrel on speculation that the weak US economy might reduce demand for energy products. Read more...
HPCL: Rs 402 +2.6%
BPCL: Rs 699 +2.0%
ONGC: Rs 276 +1.1%
Indian Oil Corporation: Rs 332 +0.8%
Overall, 79.12% of the stocks traded on the BSE closed the day with losses.
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First Published: Fri, Aug 05 2011. 05 18 PM IST
More Topics: Markets Update | India | BSE | NSE | Sensex |