Business
Fears of stock crash may ruin I-Day for investors

Mumbai, Aug. 12 (PTI): The Independence Day this week will be a moment for everyone to celebrate freedom, but stock market investors could lose their peace of mind given the fears of a greater plunge on the bourses after August 15.

If the crisis in US subprime mortgage segment continues to affect liquidity supply in global markets, analysts say its "cascading" effect could be seen on the domestic bourses when they reopen on August 16 after the independence day holiday.

This is because August 15 is the last day of the 45-day notice period required for investors to withdraw money from many hedge funds across the world during the current quarter.

"For the July-September quarter, July 1 to August 15 is the application period to withdraw serious money from a hedge fund. So, post-August 15 will probably see people queueing up for redemptions in hedge funds," Dawnay Day AV Securities Director Seshadri Bharathan said.

If this happens, it might lead to a 'cascading liquidity withdrawal' syndrome across emerging markets, including India.

"That has not happened yet, but if does, stock prices can be under selling pressure across markets where funds have invested and there could be lot of jitters in the hedge fund universe leading to pulling out of liquidity from the participatory notes front in Indian markets," Bharathan added.

Although the trip downhill began on July 27 following concerns about funds pulling out money, analysts with a bearish view believe that worst is yet to come. The weakness continued in all markets last week, especially after France's largest bank BNP Paribas on August 9 froze three funds that had invested in US subprime segment.

There are already concerns in European markets that something serious might be in store as the European Central Bank has injected more than 200 billion dollars into the financial system to thwart off any possible credit crunch.

The ECB's move was followed by injection of emergency liquidity by central banks in the US, Singapore, Japan and Australia to assuage fears of a credit crunch in the system.

While some analysts believe that weak sentiment might persist on the bourses next week, others say that Friday's quick recovery of nearly 300 points from the day's low shows the inherent strength of the market.

Holding firm till afternoon trade, the market on Friday lost ground later following weak opening of European markets.

The Sensex still closed 231.90 points lower at 14868.25, ending the week in negative territory in its third straight weekly loss. The index has fallen 908 points since July 27.

Having braved a number of turmoils in the past, bourses were seen last week trying to come to terms with external factors on which the country had no control, said a broker.

In spite of robust economic growth and June quarter earnings remaining mostly positive, bourses were overwhelmed by the US subprime mortgage crisis that involved lending to risky assets where chances of default are higher.

The chart of action taken by FIIs would also play a key role going forward. The overseas investors have sold shares worth close to Rs 1,500 crore in the current month.

Besides, rise in crude oil prices could also play a spoilsport. It has been hovering around the 70 dollar a barrel and analysts say any sharp increase in oil price may further dampen the sentiment.

Business

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