Tags:
Journalism of Courage
There was panic before the weekend as investors rushed to dump technology stock based on a weak guidance by Infosys Technologies and expectations that an oil price hike would further fuel inflationary pressure and affect corporate performances.
The benchmark Sensex crashed 219.58 points to close at 6,248.34 while the Nifty dropped 69.15 points to close at 1,956.30. The 3.39 per cent fall in the Sensex is the biggest since May 11, last year, with relatively low trading turnover.
Today’s fall also mirrors nervousness in markets across Western Europe and Asia. Opinion is divided about the near-term prospects of the market. While the optimistic, lay view is that today’s fall was an over-reaction and stock prices would bounce back quickly, institutional investors and investment analysts are less confident. They expect the correction to continue in the coming days.
Since the Infosys ADR crashed 7.5 per cent at Nasdaq on Thursday, the slump in stock prices in India on Friday was already anticipated.
However, the sharpness of the 200-plus point fall in the Sensex still caught investors by surprise because it was exacerbated by margin calls on leveraged investors, forcing them to sell a range of otherwise stable stocks to raise quick money.
There was already considerable apprehension in the market over the Infosys results, especially since the company had chosen to announce them a couple of days later than last year (the results were announced on April 10 last year) and that too on a holiday.
As always, Infosys did not disappoint on performance, but it still killed investor sentiment in the entire Information Technology (IT) sector by citing a slowdown in US orders as the reason for its weak next quarter guidance.
India’s leading stock indices were at their lowest level in three months on Friday and trading closed at the day’s lowest level once the brief last hour recovery fizzled out; consequently, technical analysts predict that prices will fall further before they recover.
The biggest casualty of today’s mayhem was the IT sector, which lost up to seven per cent in early trading. Today’s losers included the three heavyweights—Infosys, Wipro and TCS.
The market expects an oil price hike over the weekend and investors are worried that inflationary pressures will increase across various sectors of industry.
This saw some nervous unloading in a range of sectors, including metal stocks (Tata Steel, Sail, Essar Steel, Nalco and Hindalco), pharmaceuticals, auto stocks, consumer durables, capital goods, banks and auto stocks. This, in turn, drove down small and mid-cap indices.
Jittery markets are not an Indian phenomena this time. We are only caught up in the nervousness that has gripped markets across the US, Western Europe and Asia.
Technology stocks have dropped in Europe and Asia after leading IT and electronic companies such as IBM, Samsung and Sony failed to meet market expectations.
Simultaneously, the commodity boom is showing signs of petering out due to increased uncertainty over the Chinese economy and its continued imports. Stocks of steel, mining and metal companies had reported a steady decline. Worries about a slowdown in the US economy also led to a fall in stock index futures in Europe.
US stocks had also slumped yesterday, led by commodity stocks and due to concerns over a government report on business inventories that suggested a slowdown in economic growth.
