Bearish trend may continue on bourses

By Oommen A Ninan

MUMBAI, APRIL 8. The stock markets are likely to remain range bound as the extremely bearish sentiment may persist. The only silverline is the sustained buying by foreign institutional investors (FIIs). The economic outlook remains uncertain. Eventhough valuations in several sectors have become attractive, the continuing uncertainty is acting a damper.

``The market is unlikely to rebound in a sharp manner despite indications of better than expected performance from Infosys and Satyam,'' said Mr. V.R. Srinivasan, Managing Director of R.K. Chari Stock Broking. According to him, one of the main reasons for the bearish trend is the sales coming from badla financiers and banks which were saddled with stocks from the borrowers. Their anxiety and panic have resulted in selling pressure on bourses. ``Lately, technical factors are shadowing the fundamentals and until the trend is reversed, there is unlikely to be a surge in Sensex,'' Mr. Srinivasan added.

The first week of the new financial year ended on a dull note. The Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) moved down by 28.38 points at 3576 from 3604.38 in the previous week. On the National Stock Exchange (NSE) the S&P CNX Nifty fell by 14.60 points at 1134.65.

On the face of it, eventhough Sensex was down by just 0.8 per cent there was lot of activity in between. The FIIs continued to be positive and pumped in Rs. 330 crores during the week which had four working days. Domestic institutions continued to offload at every available opportunity. This lack of confidence on their part perhaps fearing a run on their funds is inexplicable.

The Securities and Exchange Board of India (SEBI) has announced its verdict in the Anand Rathi case. As expected, he has been nailed for abusing his office for personal benefit. Only if this case is taken to a logical end it will help clean up the system now rampant with insider trading of all sorts. Nothing more has come out from the ongoing investigation of the Ketan Parekh episode. Indian markets have always been driven by liquidity. In the absence of institutional funding of the equities, the Reserve Bank of India and SEBI should have been a little more alert on the source of funds especially in the backdrop of the 1992 securities scam.

The genesis of the current problem perhaps lies in the arrest of Mr. Bharat Shah who is rumoured to have a sizeable exposure to the equity market. It is likely that the biggest financier joined hands with the biggest broker and his withdrawal laid the ground for the subsequent crash in prices. The situation was exploited tactfully by the bear cartel. Had this been confined to them, the situation would not have gone out of control. However, in their anxiety or greed, to maximise the damage to the bull, they pulled the carpet so forcefully along with the bull that the market too came down crashing, damaging the fortunes of small investors.

Lack of intelligence and to a minor extent understanding of the market on the part of the regulators has been one of the reasons for this crisis. While the role and exposure of the banks and institutions are out in the open, one need to look at the role played by the corporates. It is rather surprising that HFCL borrowed Rs. 50 crores from the Unit Trust of India (UTI) when not too long ago they raised Rs. 2,000 crores through private placements. May be bulk of these funds has gone into the market. It is better the Government takes a hard stand on such diversion of funds and initiate proceedings against the errant managements as fast as they did against the bankers.

Both Infosys and Satyam are expected to announce results beating the market expectations. However, this may not have a major impact on prices as more profit warnings are coming the U.S. IT sector. Even old economy companies may not report good results if one were to go by the warnings given by Mr. Sharad Pawar that industrial activity in Maharashtra has come down sharply during the last quarter.

FIIs continue to have a positive outlook on India and their aggregate investment has already crossed Rs. 50,000 crores. Foreign direct investment (FDI) flows are quite encouraging and the response to Government disinvestment in CMC is positive. However, for some strange reason, the Government is unable to get its act together to seize the opportunity. Problems such as the one in the stock market are important lessons in the transition which should not discourage the Government from going ahead with the reform process. On the contrary, it should double the speed and make the system more transparent and resistant to possible abuses. The remedy lies in an open society and so long as the system encourages limited sharing of information, it is likely to be abused.

The expectations about the first quarter of the new financial year are quite optimistic despite the slowdown of the U.S. economy which is likely to have its impact on Europe as well. Companies are looking at ways to cut down costs and India is definitely one of the cheaper destinations. The Government and industry should work hand in hand to take advantage of this opportunity. From the Government side it should ensure availability of timely and cheaper credit and implement other reforms. The industry on its part should improve productivity and optimum use of its scarce resources.

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