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Thursday, September 13, 2001

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Indian bourses bear the brunt

By Oommen A Ninan

MUMBAI, SEPT. 12. In the aftermath of terrorist attacks in the heart of the U.S., equities in Indian bourses too bore the brunt and sentiment was affected.

The benchmark 30-share Bombay Stock Exchange sensitive index fell to a 33-month low. It opened in the red at 3030.29 and breached the 3000 mark as panic set in with investors rushing in to sell, touching the day's low of 2954.35 as selling continued. However, select buying at lower levels saw the index recover to 3046.22 at close. The 2954 mark is the lowest recorded since December 29, 1998. Both the intra-day and the closing were the lowest since December 24, 1998. Year to date, Sensex is down by 23.65 per cent.

The Asian markets also lost ground on massive selling pressure. In the Indian markets, technology stocks were the hardest hit with selling seen in both new and old economy stocks.

Meanwhile the Securities and Exchange Board of India (SEBI) tightened the circuit breaker limit which saved the market from a mayhem. It reduced the price filter from 20 per cent to 10 per cent for 53 individual securities in the derivatives segment and stated, ``Orders beyond this level will not be accepted or approved by the trading system of the exchanges." The regulator also stated that the market-wide index based circuit breakers were also kept at 10 per cent of the fall in the Sensex and S&P CNX Nifty of the pre-announced index level and further relaxation would not be permitted.

``As I see it, one needs to look at American history to see what they are likely to do and what the U.S. President, Mr. George Bush, has said is that they are going to take strong decisive action. What they are also likely to do is to increase spending possibly on defence and on rebuilding the infrastructure that has been damaged or destroyed. This will have two impacts, first to rebuild American confidence which will lead to a positive sentiment and, second to increase infrastructure spending which could lead to higher economic growth in the U.S.,'' said Mr. Nikhil Khatau, Chief Executive Officer of Sun F&C, a leading foreign institutional investor. ``So the impact on our market is short term and there is likely to be volatility as the shock of the events drive home but if the U.S. economy picks up over time, it should have a positive knock-on effect on our economy,'' he added.

``In the short term, the markets would remain relatively depressed for three reasons. First, the negative sentiment emanating from overseas, second the strains on FII flows and lastly, the concern of oil prices,'' said Mr. Ved Prakash Chaturvedi, Chief Executive, Cholamandalam AMC. ``In the short term, markets will be in a trading band of 10 per cent. However, I think from a medium term to long term - two year perspective - some high quality companies are available at good prices. Serious long term investors can benefit from this market,'' Mr. Chaturvedi added.

Meanwhile, the forex market also witnessed tremors as the rupee today closed at an all time low of 47.43/44 a dollar. The rupee fell to a fresh intra-day low of 47.50/53 in early trading after opening at 47.47/50 as banks bought dollars in anticipation of a surge in dollar demand from corporates. However, dollar offers from State-run banks arrested the further fall and it quickly recovered to 47.42/43. ``The central bank has apparently intervened through State-owned banks and prevented panic in the domestic foreign exchange market and avoided undue volatility,'' said Mr. N. Subramanian, foreign exchange consultant of eMecklai.

``However,'' said Mr. Subramanian, ``the rupee's abrupt decline from 47.13 at the beginning of the previous week to 47.50 as also the terrorist attacks in the U.S. have unnerved corporate India and sentiment for the rupee has turned unfavourable''. According to him, import demand is growing while remittances from exporters are on the decline and capital inflows are not sufficient to offset the imbalance.

The rupee was ranged between 47.42 and 47.46 amid dollar sales by State-run banks and also soothing statements from the Reserve Bank of India Governor, Dr. Bimal Jalan, and the Union Finance Minister, Mr. Yashwant Sinha. The Finance Minister who had a day- long programme in Mumbai today said he saw no reason for the rupee to be affected. Dr. Jalan felt that any fallout of the attacks on the U.S. would not immediately hit the Indian economy.

The call rate closed higher at 7.10-7.30 per cent as compared to Tuesday's close of 6.90-7 per cent. Forward premiums skyrocketed on huge paying interest prompted by wider interest rate differentials between the U.S. and India following a crash in dollar LIBOR (London Inter Bank Offered Rate). The benchmark 6- month dollar LIBOR fell sharply to 3.10 per cent from 3.34 per cent on Tuesday. The benchmark 6-month premium was higher by 27 basis at 4.91 per cent against Tuesday's close of 4.64 per cent.

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