The Hindu : Extended correction on bourses

Online edition of India's National Newspaper
Monday, Feb 02, 2004

Business

Business

Extended correction on bourses

DESPITE THE announcement of better-than-expected third quarter performance by major blue chip companies, the BSE Sensex extended its weekly losses for the third straight week, dipping by another 2.08 per cent. Operators turned extremely cautious and were unwilling to carry forward their positions fearing a slowdown in FII inflows following the Securities and Exchange Board of India's (SEBI) decision to bar foreign funds from issuing participatory notes to unregulated entities from February 3. Old and new economy stocks fell prey to profit taking. Small and mid-cap stocks too were hit on selling pressure from operators and retail investors.

The market has turned choppy and highly unpredictable in recent times characterised by wild intra-day swings. The intra-day movement in the Sensex has ranged over 200-300 points.

According to market experts, the volatility is the result of hedging between the cash and F&O segments. The market witnessed a roller-coaster ride on alternate bouts of buying and selling. The sell-off by operators was more in the nature of squaring up not only because of the expiry of January contract of derivatives on Thursday but also due to their preference to book profits at the prevailing high levels.

Software shares were also dogged after the recent U.S. ban on outsourcing of federal government contracts.

The BSE benchmark 30-share index ended the week with a sharp net loss of 120.97 points at 5695.67 against the previous weekend close of 5816.64. The BSE barometer has fallen by 423.92 points or 6.93 per cent in the past three weeks in an unusually volatile market. The index surged 176.42 points on Tuesday after SEBI clarified its stand on participatory notes (PNs). While banning fresh issue of PNs to unregulated entities, it gave a grace period of five years for liquidation of existing outstanding PNs with unrecognised foreign funds.

Meanwhile, SEBI clarified it was formulating norms for regulating FIIs and was considering a flexible hedge funds policy, subject to profit disclosures.

Following the market friendly mini-budget announced by the Finance Minister earlier this month, the commerce minister, Arun Jaitley, offered many sops to exporters. The Government removed quantitative restrictions on the import of gold and silver, and allowed duty free import of professional equipment for the services sector.

The Railway Minister's announcement on Friday was also ignored by marketmen.

The market failed to respond positively to the encouraging performance by major companies like State Bank of India, ITC, Reliance, Satyam, Wipro, Tata Motor, MTNL and HPCL which showed impressive Q3 working beating market expectations.

Foreign institutional investors made net investments of Rs. 584 crores in the first three sessions. Operators seemed concerned about the political situation after Parliament is dissolved on February 6. The week witnessed all round selling pressure in auto, steel, banking, technology, pharma and PSE stocks. Some institutions were selling heavily in index based stocks. Retail investors also resorted to some panic selling.

Banking stocks were hammered. SBI was a prominent loser even after the bank reported a 17 per cent jump in Q3 profit.

Others like Oriental Bank, PNB, Union Bank, Allahabad Bank, Canara Bank, Bank of Baroda and Andhra Bank lost 3-8 per cent.

The mood of the market appeared extremely bearish towards the close.

There was talk that the market regulator would seek details relating to the recent volatility in the stock market. Operators and investors booked profits in blue chip companies.

Rupee strengthens

Despite mild month-end pressures and a resurgent dollar overseas, the Indian currency strengthened against the U.S. currency and scaled new 11-week highs, driven by heavy exporter dollar sales and steady foreign fund inflows.

In generally quiet and range-bound trade during the week, the rupee ended at 45.30/31 a dollar, sharply higher from the previous weekend levels of 45.35/36.

Overcoming the usual month-end dollar demand from large offshore oil companies, the rupee posted fresh gains on the back of heavy exporter dollar sales and unwinding of long dollar positions by banks ahead of the long holiday weekend, dealers said.

Interest rates higher

Interest rates moved up marginally last week. The ten year government security was traded at a yield of 5.20 per cent and the five year security at 4.98 per cent. The year-on-year inflation was lower at 6.13 per cent as on January 17.

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