Slowdown anxiety grips the market

By Ashok D. Singh

The BSE Sensex declined 466.24 points or 2.69% to settle at 16,839.63 for the week ended Friday, 12 August 2011. The CNX Nifty fell 138.30 points or 2.65% to end at 5,072.95. The BSE Small-Cap index tanked 2.48% and the BSE Mid-Cap index fell 1.14%. Both these indices outperformed the Sensex. The Sensex is down 2,031.66 points or 10.76% from its recent high of 18,871.29 on Monday, 25 July 2011. Out of the 5 trading sessions, the Sensex gained in 1 and declined in 4 of them last week.

The anxiety related to the double dip recession in USA, which is the world's largest economy dragged the market lower last week. An unprecedented downgrade of USA from AAA to AA+ by the US credit rating agency Standard & Poor's on Friday, 5 August 2011 led investors to reduce exposure to risky assets. The US Federal Reserve decided on Tuesday, 9 August 2011 to keep US interest rates ultra low for more two years to avoid a recession on this planet.

As Q1FY12 results are over. Indian stocks will take cues from global markets. A recent correction in commodity prices including that of crude oil and metals augurs well for corporate and the government for reining in the oil subsidy burden. Lower commodity prices may also help rein in high inflation.

Trading for the week began on a weak note. Key indices declined for the fifth straight day on Monday, 8 August 2011 as an unprecedented downgrade of the US credit rating by Standard & Poor's on Friday, 5 August 2011 led investors to reduce exposure to assets perceived as risky and escalated worries about global economic outlook. The Sensex crashed by 315.69 points or 1.82% to close at 16,990.18 and the Nifty sank 92.75 points or 1.78% to end at 5,118.50.

Data showing hefty sell off by FIIs and anxiety of double dip recession in USA pushed Indian shares lower for the sixth day in a row on Tuesday, 9 August 2011. The Sensex fell 132.27 points or 0.78% to close at 16,857.91 and the Nifty was down 45.65 points or 0.89% to end at 5,072.85.

A broad based rebound was witnessed on the bourses on Wednesday, 10 August 2011 as US Federal Reserve decided on Tuesday, 9 August 2011 to keep US interest rates ultra low for two more years, which raised expectations of higher in fund inflows into high yielding emerging markets such as India. The Sensex rose 272.60 points or 1.62% to close at 17,130.51 and the Nifty was down 88.15 points or 1.74% to end at 5,161.00.

Key indices edged lower in choppy trade on Thursday, 11 August 2011 as an increase in food inflation raised concerns. The RBI will stick to its tight monetary policy. The Sensex fell 71.11 points or 0.42% to settle at 17,059.40 and the Nifty was down 22.70 points or 0.44% to end at 5,138.30.

Key indices toppled on Friday, 12 August 2011 on concerns related to higher interest rates will crimp corporate profit growth. The Sensex tanked 219.77 points or 1.29% finally to settle at 16,839.63 and the Nifty was down 65.35 points or 1.27% to end at 5,072.95.

The market will remain closed on Monday, 15 August 2011 on account of Independence Day.

Higher interest rates may continue to weigh on realty and automobile sectors. Buying of automobiles including that of cars utility vehicles and commercial vehicles is substantially driven by financing. As far as the realty sector is concerned buying of both residential and commercial property is largely driven by finance.

Foreign investors investing in India are focusing on India’s corporate growth performance as they were worried that higher interest rates will crimp corporate profit growth.

On the global front, USA and European stocks have been quite volatile of late. On Monday, 15 August 2011 global equity markets will react to data on US retail sales for July 2011 to be released on Friday, 12 August 2011. Even data for June US business inventories are due on Friday, 12 August 2011.