Indian stocks at new 14-month low

Indian stocks at new 14-month low

Mumbai: Indian stocks tumbled on Thursday, tracking weak global markets, and ended at a 14-month low even as worries of a recession in the US and Europe continued to weigh on investors’ sentiment.

Fears of another round of interest rate hike when the Indian central bank meets next month, after a drop in the pace of growth of food and fuel prices, also made investor rush to sell stocks.

The 50-stock Nifty index of the National Stock Exchange (NSE) closed below the psychologically important 5,000 mark and is now only 137 points away from its low recorded 14 months ago, in May 2010. It is also 225 points away from its February 2010 low, after losing 112.45 points, or 2.22%, to end the day at 4,944.15.

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The benchmark 30-share Sensex of BSE lost 371 points, or 2.2%, to close at 16,469.79.

BSE’s information technology index was the biggest loser (down 3.99%) among sectoral indices on Thursday, as investors sold shares of these companies that derive the bulk of their revenue from the US and Europe. Two of the US Federal Reserve’s officials said they opposed the promise to keep interest rates at near-zero levels until mid-2013.

Both the Indian indices have lost more than 21% from their highs recorded on 5 November and, hence, are technically in a bear market zone. In this calendar year so far, they have lost more than 19%, eroding investor’s wealth to the tune of 25.51 trillion.

“While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period," according to Vanguard Group, a US investment management firm.

Adding to the worries on a nervous trading day, Morgan Stanley Asia Ltd cut its year-end target for the Sensex by 15% to 18,850. The brokerage also reduced its forecast for India’s 2012 gross domestic product (GDP) growth to 7.4% from 7.8% and its estimate for the fiscal year ending March 2013 to 7.6% from 8%.

“We believe a combination of factors—including persistently high inflation, higher cost of capital, cut in the ratio of fiscal spending to GDP, a weak global capital markets environment and slow pace of investment—will cause a further slowdown in growth," analysts Chetan Ahya and Upasana Chachra of Morgan Stanley wrote in a report released on Thursday.

The index measuring wholesale prices of farm products including rice and wheat rose 9.03% from a year earlier in the week ended 6 August, the commerce ministry said on Thursday. It increased 9.9% the previous week.

The Reserve Bank of India, which has hiked policy rates 11 times since March 2010, is scheduled to meet on 16 September to review its monetary policy. Prime Minister Manmohan Singh said in his 15 August speech that taming inflation would be his government’s “top-most" priority.

Market experts do not see any relief in the near term and say the worst is yet to come. There may be sporadic bounce-back rallies, but they may not sustain.

“There is plenty of pain left. I expect another 10% fall in indices and some stocks may fall up to 30%. Relief rallies will not be sustainable. It will take a long time for the markets to even consolidate," said Shankar Sharma of First Global Stockbroking Pvt. Ltd.

On charts, the picture is not any brighter. Technical analysts also think there could be worse days ahead.

“Nifty is below its 100-day moving average and we are absolutely in a bear market. Outlook is extremely weak. There is support for Nifty at 4,800, which if sustained, the index may bounce back. But the rally will not sustain. The outlook is bad till 2013," said Alex Mathews, head of research, Geojit BNP Paribas Financial Services Ltd.

Foreign institutional investors (FIIs) were net sellers of Indian stocks worth 488.67 crore on Thursday, while domestic institutions were net buyers at 330.42 crore, according to provisional data available on the NSE website.

In the year so far, FIIs have bought stocks worth a net $775 million as on Thursday, while domestic institutions bought shares worth 14,313 crore.

Morgan Stanley cut its forecast for global growth this year, citing an “insufficient" policy response to Europe’s sovereign debt crisis, weakened confidence and the prospect of fiscal tightening. It estimates expansion of 3.9%, down from a previous forecast of 4.2%. Morgan Stanley cut its China growth forecast for next year and Deutsche Bank AG reduced its estimates for the nation for 2011 and 2012.

The threat to the global economy from the debt burdens of developed nations from the US to Europe has roiled world markets this month and wiped trillions of dollars off the value of equities. At the same time, slowing expansion in countries including Germany, the key driver of European growth, is hurting confidence.

The US and Europe are “dangerously close to recession", Morgan Stanley analysts, including Chetan Ahya, said in the note. “Recent policy errors, especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling, have weighed down on financial markets and eroded business and consumer confidence."

Bloomberg contributed to this story