M A I N   N E W S

Stock markets record new lows
T.V. Lakshminarayan and Gaurav Choudhury
Tribune News Service

New Delhi March 13
Stock markets across the country rocked violently, plunging share prices to new lows and the BSE 30-share index by a whopping 227.24 points.

In what came to be described as a “Black Tuesday”, the Bombay sensex saw a sharp slide of 320 points at one point, bounced back with the same vigour before going down to settle at 3540.65 points at the end of the day.

In percentage terms, the fall was 6.03 per cent, which wiped out thousands of crores of rupees of market capitalisation.

The volatile swings caused an uproar in Parliament and the Finance Minister, Mr Yashwant Sinha, announced several measures to stabilise the market. This was the sixth largest fall of the sensex since 1992, market sources said.

The Centre, in spite of maintaining a brave front, has directed the Department of Revenue Intelligence and the Enforcement Directorate to investigate the role of several prominent and influential personalities in the stock market crisis. The nexus between politicians, stock brokers and certain investment bankers is also being probed.

The measures included the corporatisation of the stock markets, extension of rolling settlement to 200 category “A” stocks in the Modified Carry Forward Scheme and legislative changes to further strengthen the provision in the SEBI Act, 1992.

The Finance Minister’s response to the calling attention motion by Dr Manmohan Singh of the Congress in the Rajya Sabha appeared to have a soothing effect on the bourse.

Heavy offloading in stocks that were proposed to be brought under the extension of rolling settlement category were also reported. The market experienced further jerks during the day when an Internet portal claimed that it had exposed corruption in high places in defence deals. Expectations of an impending political crisis dampened soaring spirits sending prices once again in a tizzy.

Earlier in the day, the market opened with a wide gap of 162 points at 3605.53 points as the SEBI announced that it was sacking all the elected members of the BSE governing body for their alleged lapses in maintaining the safety in market.

The BSE Executive Director, Mr A.N. Joshi, however, maintained that the sacking of all elected members of the governing body of the BSE would not affect its functioning. In line with the massive fall in share prices at the BSE, the National Stock Exchange too experienced severe jolts.

Market analysts said the fall in most of the Asian markets today, followed by fresh sharp fall in Nasdaq and Dow Jones yesterday, also fuelled the bearish trend. Since Indian technology stocks are listed in Nasdaq, the plunge there triggered similar reactions in the Indian bourses. Leading investment banker, Credit Suisse Lyonias, has also issued a profit warning to Indian technology companies.

It has said that Indian software companies are expected to grow at a rate of 40 per cent to 50 per cent from the earlier projections of 50 per cent to 60 per cent.

Volatile trading and panic
Ashok Kumar

Mumbai, March 13
Volatile trading and panic characterized Tuesday’s ‘Tehelka’ trading session. The bell-weather BSE Sensex touched a new 22-month low by mid-day, then recovered dramatically a little later before collapsing again. Both old and new economy counters that had gained ground earlier fell across the board with quite a few hitting the lower price circuit. The losses in the market were widespread.

Unlike past sell-offs, investors found no safety in drug, tobacco and utility stocks that have gained during the tech sell-off. But the biggest losers once again were technology stocks, whose gains had sparked the bull market run of the late 1999s on the back of a frantic Nasdaq upswing. A word here though — almost every marketman who is now wailing and breast-beating about the Nasdaq fallout on the BSE Sensex had been part of the group that had cheered in the aisles when the Nasdaq upswing a year and a half ago had sent prices skyrocketing at the Indian bourses. Mercifully, the Nasdaq futures indicated a positive opening during Tuesday’s mayhem offering a faint glimmer of hope.

While some of the institutions — local as well as foreign — were informed to be active at some of the index-based stock counters, operators were still selling at the higher levels. Following SEBI’s much belated but yet laudable decision of barring seven broker-directors from the BSE governing board, the losses in the market were broad-based. Then, there was also the backdrop of a black Monday at the American bourses wherein both the Dow and the Nasdaq crashed. The Dow slipped by a whopping 436 points while the Nasdaq slipped below the psychological 2000 points level and closed at 1923 points.

What fuelled the crash
The alleged insider trading in Global Trust Bank (GTB) shares ahead of its announcement of a merger with UTI Bank has taken a new twist. Now, there are reports that a number of non-banking finance companies (NBFCs) had bought GTB shares prior to the much talked about spurt in GTB’s share price.

In the meanwhile, Union Finance Minister Yashwant Sinha has proposed the inclusion of more scrips under the rolling settlement mechanism. Panic selling by operators intensified after the Finance Minister announced in Parliament today that the compulsory rolling settlement will be extended to an additional 200 scrips including those in the specified group. While this is undoubtedly a positive move towards cleaning up the system and moving towards global market trends it fuelled worries of the liquidity crisis intensifying in the immediate future. Furthermore, the Finance Minister also announced that all stock exchanges would be corporatised and that the laws will be amended to usher in a comprehensive Investor Protection Act.

Aggravating matters further was the knee jerk market reaction to a report on a leading news website stating that it had unearthed a defence scam. The report has stated clearly that some of the coalition partners in the government are involved in the scam. This led to a sudden spurt in selling as the view on the street is that if this is true then one could see a lot of political upheavals in New Delhi.

Finally, there was also news that the RBI is investigating reports that the Madhavpura Mercantile Cooperative Bank is suffering liquidity problems due to stock market losses. The RBI has sent a team to Ahmedabad to assess the reported problems and investigate the bank’s dealings. A leading financial daily had reported that the bank was facing a run on deposits, on rumours that it had lent heavily to stockbrokers.

The road ahead
The road ahead seems bumpy and uncertain, but remember the biggest stock market success stories have commenced when all seemed lost. Who knows, a turnaround may be round the corner. Those with a penchant for risk taking in the quest for big gains could perhaps throw their hats into the ring.

(Ashok Kumar heads Lotus Strategic Consultants, Mumbai)