After mayhem, Indian equities recover on global interventions (Round-up)

Mumbai, Oct 8: A key Indian stock market index crashed by over 950 points Wednesday, but staged an impressive recovery following regulatory interventions across the globe to cushion the financial crisis that has gripped international financial markets.

A meeting of Union cabinet, presided over by Prime Minister Manmohan Singh, also discussed the turmoil in the Indian capital markets and the impact of the global financial crisis on the Indian economy, following which it was decided to set up an expert committee to suggest possible action.

At one point during trading, the bellwether 30-share sensitive index (Sensex) of the Bombay stock exchange was down a whopping 954.48 points, but recovered as key Indian policy makers sought to talk the markets up and authorities in the US and Britain acted with some policy measures including a bailout package and rate cuts.

At the day's bottom at 10,740.76 points, the bellwether index was at its lowest level since Aug 1, 2006, even as the Indian rupee also came under the grip of the global financial storm, falling to a six-year low above Rs.48 to a dollar.

Semblance finally returned and lifted the markets after the British government announced a 50 billion pound bailout package for the banking sector. This was followed soon by a 50-basis-point rate cut by the US Federal Reserve.

The Sensex, the oft-quoted index to highlight the movement of Indian bourses, finally ended at 11,328.36, against the day's low of 10,740.76 points, but with a loss of 366.88 points or 3.14 percent over the previous close.

Apart from the fears of the adverse impact of the global financial turmoil on the Indian stock markets, another major concern that led to the crash Wednesday was the net outflow of investment from foreign funds in recent weeks.

“Foreign institutional investors have taken out around USD 10 billion so far in the current year. We expect the total outflow by the end of this year will be USD 13.5 billion,” said Amitabh Chakraborty, president of Religare Securities.

“The foreign funds have lost around 48 percent of their capital and 19 percent on the dollar,” he said. “There is tremendous redemption pressure.”

“There was tremendous nervousness in the market because despite the hard work being done by central banks across the world the crisis is refusing to go away and more and more European banks are getting into trouble,” said Jagannadham Thunuguntla, head of the capital markets arm of India's fourth largest share brokerage firm, the Delhi-based SMC Group.

“Foreign institutional investors, especially hedge funds and private equity funds are selling indiscriminately and at any price as they have now come under tremendous redemption pressure,” Thunuguntla told IANS.

“Together with a major liquidity problem throughout the system there are no buyers even at the current levels,” he added.

Wednesday saw only six out of 30 scrips in the basket of shares of the Sensex managing to end on a positive note, led mainly by pharmaceuticals major Ranbaxy that got a reprieve from the US Food and Drugs Administration on some key drugs.

Tata Motors, Mahindra & Mahindra, Maruti Suzuki, DLF and Reliance Communications also bucked the trend, registering gains of between 9.08-0.15 percent.

Jaiprakash Associates led the losers, with its scrip down 9.91 percent, followed by Wipro (-7.91 percent), Sterlite (-6.85 percent), ICICI Bank (-6.53 percent) and State Bank of India (-6.10 percent).

The recovery was also staged after key Indian policymakers, including Finance Minister P. Chidambaram and Commerce Minister Kamal Nath, said all was well with the economy but for some liquidity issues.

"Indians should feel confident about the fact that India is a growing economy," the finance minister told reporters in New Delhi. "If need be, we will take further measures to infuse liquidity in the market.”

The finance minister's comments came even as Planning Commission Deputy Chairman Montek Singh Ahluwalia maintained that the current turmoil in the Indian stock markets was part of the global crisis.

"There is nothing to worry about,” he said, while unveiling a new Internet site of the plan panel. “We have to wait and watch if the US bailout plan succeeds," Ahluwalia, who met Chidambaram earlier in the day, added.

Sensex Snapshots:

Wednesday Open: 11,316.24
Wednesday Close: 11,328.36
Wednesday High: 11,405.73
Wednesday Low: 10,740.76
Previous Close: 11,695.24
Change in points: (-)366.88
Change in percentage: (-)3.14
52 week fall in percentage: (-)35.23
Change of small-cap (%): (-)5.57
Change in mid-cap (%): (-)5.79
Top gainer: Ranbaxy
Top loser: Jaiprakash

In Britain, meanwhile, the government announced a major rescue package for leading banks of 50 billion pounds (USD 87 billion) to stabilize the banking system.

Chancellor of the Exchequer Alistair Darling, detailing the plan in a written statement to the London Stock Exchange, said the package was aimed at placing the banking industry on a long term "sound footing."

In similar fire-fighting action, the US Federal Reserve cut its interest rate by 50 basis points, even as central banks in Canada, Switzerland, Sweden and Australia, as also the European Central Bank, initiated similar actions.

In the morning, the Indian markets largely followed the trends around the globe where key indices in Australia, Japan, Hong Kong and South Korea registered sharp losses while the authorities in Indonesia ordered closure of trading after the market index breached the circuit breaker by falling more than 10 percent.

One of the key reasons for the fall was the news suggesting a much larger and wider impact of the current global financial turmoil than feared earlier where the Iceland government was forced to borrow a paltry USD 5.6 billion to tide over its finances and also nationalised the country's second largest bank.

The inter-bank money market in the US and Europe also came to virtual standstill following complete lack of confidence among banks, analysts said, hoping that some bail out packages that are in the offing will be able to cushion the liquidity crisis in the ensuing days.