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Journalism of Courage
Dalal Street’s southward journey continued for the second day in a row with the benchmark Sensex plunging another 327 points amidst weakness in global markets and heavy FII outflows. With this, the index has fallen 715 points in the last two days.
The fall was accentuated in the latter part of the trading session as auto, metal and refinery shares were battered mercilessly. Metal shares too plunged due to a fall in metal prices on the London Metal Exchange.
In volatile trading, only two out of 30-Sensex stocks ended in positive zone with minuscule gain. The Sensex closed 3.1% lower at 10,071.42. The S&P CNX Nifty fell 108.80 points or 3.5% to settle at 2,962.
An early surge due to firm Asian markets proved short lived. The Sensex had risen nearly 200 points in early trade to a high of 10,597.23. While some Asian markets pared gains, some markets ended in the red, in contrast to a firm trend earlier during the day. Hong Kong’s Hang Seng was down 1.3%. European shares slipped in early trade with investors pulling out of stocks on worries over inflation, rising global interest rates and a potential economic slowdown.
Analysts are carefully monitoring cash flows out of emerging markets funds after they posted their largest redemptions in the past two years, in the week through May 24. Emerging-market equity funds posted their biggest weekly outflow in two years on concern that inflation in the US may lead to further increase in interest rates.
FIIs have withdrawn a net $2.47 billion out of the Indian stock market in the last 14 trading days, taking their net investment down to about $2.38 billion in calendar 2006 so far. ‘‘A possibility of further correction cannot be ruled out, given that the rally was quite steely over the past few months,’’ said BSE dealer Pawan Dharnidharka.
The Sensex has corrected 2,540.96 points (20.1%) from a lifetime closing high of 12,612.38 on May 10, 2006. Even after the correction, it is still up 2,385.78 points (31%) from a low of 7,685.64 on October 28, 2005.
‘‘We feel investors are being betrayed by high earnings growth projections and macro risks are being ignored. We believe Indian equities have far further to correct compared to regional peers, and thus remain bearish, with a lean towards Taiwan as an alternative,’’ analysts at Japan’s Nomura International, said in a recent note to investors.
The delay in hiking fuel prices is also creating uncertainty in the market.
