Markets get into reverse gear

The bull juggernaut has started moving backwards. The 1,800-point crash in the Sensex last week has been swift.

The bull juggernaut has started moving backwards. The 1,800-point crash in the Sensex last week has been swift. Before several investors could realise what8217;s going on, over Rs 5,00,000 crore of their wealth 8212; measured in terms of market capitalisation 8212; evaporated in just five days.

Is the Reliance IPO responsible for the fall? Has the fall in Wall Street and other global markets led to sell-offs in India? Investors are searching for answers even as it becomes increasingly clear that global problems 8212; especially that of the US 8212; have much to do with the latest fall.

8220;The Reliance IPO is not the reason for last week8217;s fall in Indian markets. Investors will not wait till the last minute to raise funds to invest in IPOs the Reliance IPO closed on Friday. They would have readied the funds at least a week in advance. The economic problems in the US and the fall in global markets have led to the fall in Indian markets,8221; said Karvy Stock Broking vice-president Ambareesh Baliga.

True that Reliance Power IPO got bids worth Rs 7,50,000 crore from investors. But, more than half the money was put in by institutional investors who need to bring only 10 per cent of the money upfront while submitting the bids. 8220;It could have played a small role in the market fall. But other domestic and external factors played bigger roles in the downturn,8221; said an investment banker.

8220;FII selling led the fall. Global weakness due to the fear of US recession added salt to the wound. In the weekly charts, we find some fresh clues for the current downtrend may continue. Since the week ended on August 31, 2007, for the first time, the Nifty closed below 10-week simple moving average,8221; said technical analyst with Asit C Mehta Investment, Suresh Kumar Iyer.

Foreign investors who put over 17 billion in Indian stocks in 2007, sold stocks worth around 1.1 billion on Wednesday and Thursday, as per Sebi figures. It8217;s believed that FIIs had withdrawn another 500-700 million on Friday when the Sensex tanked by 687 points, pulling heavyweights, mid-caps and small-caps down by 5-10 per cent.

According to Baliga, the Indian market was late in catching up with the downturn in other global markets. Analysts and stock dealers agree that signals from the US 8212; which sets the global trend due to its sheer size 8212; are far from reassuring. Mounting US recession fears and the continuing subprime turmoil are likely to bog down the markets as seen last week after global markets followed US market slump.

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Citigroup posted their first-ever quarterly loss and disappointing holiday shopping numbers and manufacturing trends fuelled fears that the world8217;s largest economy was heading into a recession. Pessimism about the US economy further mounted after Intel posted earnings and a profit forecast that disappointed investors.

Any recession in the US would lead to a fall in FII inflows. US-based funds 8212; the largest investors in India 8212; will find it difficult to mobilise funds. 8220;Economists continue to revise downward growth projections for most mature-market economies in 2008. The deepening slide in US housing will hurt the US economy because of the sector8217;s links with important feeder industries and the influence of house prices on consumer borrowing and spending. Europe also faces a likely slowdown in the retail and construction sectors,8221; said Standard 038; Poor8217;s credit analyst Scott Bugie.

Inflation is rearing its ugly head again. Now with fuel prices likely to go up, inflationary pressures are likely to mount further. To top it all, the Economic Advisory Council and Moody8217;s have indicated a fall in GDP growth. Moody8217;s has warned of slow infrastructure growth and said: 8220;it remains India8217;s Achilles8217; heel8221;.