Mumbai: It’s official: the Indian stock market’s behaviour since 10 January can be termed a correction.
In stock market speak, any fall of 10% or more can be termed that and the Sensex, the benchmark index of the Bombay Stock Exchange, has fallen 10.3% over the past eight days. But the timing of Friday’s 687-point, or 3.49%, loss was surprising: it came even as all other Asian markets recovered from heavy losses on renewed confidence after US president George W. Bush and the Federal Reserve chairman Ben Bernanke said they supported an economic stimulus package worth $150 billion (Rs5.9 trillion) to avert recession in the world’s largest economy.
The Sensex had reached its lifetime high of 21,206.77 on 10 January.
Down, Down ... (Graphic)
Asian markets initially fell on Friday after the Dow Jones Industrial Average slid 2.5% on Thursday to 12,159.21, triggered by a government report indicating heavy decline in manufacturing and housing activities in the US, increasing fears of a recession. However, most of them, including Hong Kong’s Hang Seng index and Japan’s Nikkei 225, ended the day with gains.
On Friday, the Dow Jones Industrial Average was trading at 12,289.44, 1.1% up at 9pm India time.
Unlike their Asian peers, Indian stocks failed to recover mainly because of the lack of liquidity in the secondary market, sucked out by large initial public offerings (IPOs), said analysts and brokers.
The $3 billion Reliance Power Ltd IPO, the largest ever by an Indian firm, closed on Friday. At 7pm, the issue was subscribed more than 74 times, attracting bids worth Rs7.49 trillion ($190 billion).
According to investment bankers associated with the issue, at least $150 billion worth of bids were from institutional investors. As institutional investors are required to pay 10% of the subscription amount, this translates into an inflow of $15 billion.
Future Capital Ltd’s Rs490 crore IPO, which closed this week, was subscribed 180 times by institutional investors, who placed bids worth Rs52,920 crore ($13 billion).
Together, these two IPOs have locked anywhere between $16 billion and $18 billion, more than the net investment of foreign institutional investors in Indian equities in all of 2007.
“Even small selling pressure can increase the fall (on index) as a large part of the money in the secondary market is locked away in two large IPOs,” said V.R. Srinivasan, chief executive of Brics Securities Ltd, a domestic brokerage. “When this money comes back to the system, the index could race back to 21,000 and above, provided the global sentiment is better,” he added.
Another large IPO, that of Emaar MGF, is set to open either in late January or early February.
Some institutions are looking at the fall as an opportunity to buy stocks. Sushobhan Sarkar, executive director of investments at India’s largest institutional investor, Life Insurance Corp. of India (LIC) said: “We are very positive on the market. We are buying stocks at every drop in the index.”
“This correction (on Sensex) is purely based on global economic sentiments,” said Jignesh Shah, head of equities at the private banking division of ABN Amro Bank NV in India. “The corporate results were good. Once this correction is over, Indian market will show its true colours, based on its economic fundamentals.”
According to a study released on 17 January by CLSA Asia-Pacific, one of the largest foreign brokerages, India ranks at the top in the Asia-Pacific regional market earnings growth forecast for 2008 and 2009, followed by Indonesia, the Philippines, Singapore and China.
According to Christopher Wood, managing director and chief equity strategist of CLSA, if there is one growth story in Asia that has a hope of decoupling from the reverberations spreading globally from the meltdown of structured finance, it is probably the Indian investment cycle.
Among sectoral indices of BSE, the Realty index lost the maximum, 9.41%, followed by Teck and IT indices, losing 9.07% and 8.59%, respectively.
(Ashwin Ramarathinam contributed to this story.)