Mumbai: Sensex, India’s bellwether stock index that continued to drop for the fourth consecutive day on Thursday to close at 19,700.45 points, has lost 7.1% from its peak of 21,206.77 achieved on 10 January. Analysts attribute the fall to investors’ risk aversion, triggered by the increased subprime-related losses of US banks.
Another factor, analysts point out, is the large capital flow from the secondary market to the primary market that is seeing a spate of public floats by high-profile firms.
“Many of our clients have cut positions in Indian derivatives market by 15-20% to bid for the Reliance Power’s initial public offer,” says Arpit Singhal, an associate at CLSA Asia Pac’s structured products division in Singapore. “The total bids amount to over $50 billion...a huge amount, enough to disturb the market,” he said.
The Reliance Power IPO, which closes subscriptions on Friday, received bids worth Rs2.17 trillion on Thursday, more than 20 times the issue size with a record 2.2 million applications. The Rs491.34 crore IPO of Future Capital Ltd, an arm of Future Group, that closed on 16 January, was subscribed 133 times.
Foreign institutional investors have net-sold more than $1.5 billion worth of Indian equities in cash market transactions this year, according to data on Bombay Stock Exchange (BSE). They had bought a record $17.2 billion worth of Indian stocks in 2007.
Rajeev Malik, executive director, Asia Economic Research at JPMorgan Chase Bank NA, said the uncertainty and volatility in Asian markets will continue: “All the high-beta Asian markets have witnessed outflows. No market is completely safe though the degree in which they get affected could be different.” However, India could be far lesser affected by a US recession than its Asian peers, he added.
From the beginning of this year to 16 January, Hong Kong’s Hang Seng lost 11.28% while Singapore’s Strait Times shed 11.2%. Japan’s Nikkei and Korea’s Kospi also lost more than 8% during the period.
However, all these markets witnessed a bounce-back on Thursday. Benchmark indices of Japan, Hong Kong and Singapore gained well above 2%. Kospi gained 1.09%. China’s Shanghai Composite, flat so far this year, was the biggest loser on Thursday, down 2.63%.
“The correction in other Asian markets had started long back,” said Manishi Raychaudhuri, executive director of investment research at UBS Securities India Pvt. Ltd. “India still is a preferred market and is relatively safe,” he said.
Institutional investors are flocking to low-risk avenues such as precious metals. The spot price of gold has moved up 2.69% from $858.16 to $881.27 per ounce since 7 January. “When you have a global economic turmoil, investors immediately turn to low-risk assets such as gold,” added UBS’s Raychaudhuri.