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Mumbai There could be more pain for Indian shares this week as large foreign funds unwind their positions to make up for losses elsewhere, while retail investors will take time to return after Reliance Power's initial public offering set a record for subscriptions.
With the US battling to keep recession at bay and massive writedowns by Citibank, Merrill Lynch, Goldman Sachs, JP Morgan and Lehman Brothers, the repercussions are finally reverberating through Indian markets that had held out on the back of a robust domestic-demand powered economy.
"India may not catch a cold if the US economy sneezes, but there will be a price to pay," said equity trader Kevin D'Souza. "This is the effect of globalisation."
The Sensex posted its biggest weekly fall in 20 months last week, tumbling 8.7 per cent to 19,013.70, the lowest close since November 29. The blue-chip index is 10.3 per cent off its all-time high of 21,206.77 set on January 10.
The selloff was led by foreign funds that dumped $1.1 billion of shares in two days, and registered a net outflow $546.3 million for January. The Sensex had risen 47 per cent in 2007, propelled by foreign portfolio inflows of a record $17.4 billion.
"Liquidity is getting tight," D'Souza said, referring to Reliance Power's $3 billion IPO, which received subscriptions for a record $190 billion, according to provisional figures from the National Stock Exchange after the offering closed on Friday.
The subscriptions were equivalent to the combined value of the Portuguese and Czech stock markets, Bloomberg said.
D'Souza said foreigners had brought in more than $10 billion for bidding in the IPO, while retail investors were given an option to pay a quarter on application. Still, the offering sucked money away from the stock market.
Reliance Power, which will use the funds to build 13 plans to generate 28,200 megawatts, is expected to price the offering at the top end of the Rs405-Rs450 indicated band, and the Anil Ambani group firm has said it hopes to begin trading on the stock exchanges by early February.
Montek Singh Ahluwalia, deputy chairman of the Planning Commission, said on Friday a global slowdown could cut India's economic growth by a half percentage point. India's economy grew 9.4 per cent in the financial year to March 2007 and the commission has forecast growth to average nine per cent in the following five years.
"On a basis of 9 per cent, if there is a global slowdown, maximum impact on Indian economy could be half a per cent," he said.
US slowdown
Finance Minister P. Chidambaram has warned that a US economic downturn would have some impact on India, but analysts said he was trying to play down the consequences.
"The impact could be bigger than what the policymakers are saying," said equity strategist V. Venugopal. "There will be job losses and that will crimp spending."
Rising incomes in India were partly helped by booming back-office services, set up by big foreign companies or local firms whose clients are mostly US firms. The subprime meltdown has resulted in several mortgages closing down their operations, affecting jobs in India.
Lehman Brothers is closing its mortgage division in Mumbai, but will absorb the 100 staff in other divisions.
The RBI has been buying dollars heavily to limit the rupee's ascent, but this has swelled liquidity in the system and fuelled inflation.
Quarterly results due this week are: Oil and Natural Gas Corp, Satyam Computer Services, HDFC Bank, Kotak Mahindra Bank and Bharat Forge on Monday; Grasim Industries and Pantaloon Retail on Tuesday; Hindustan Petroleum on Thursday and Dr. Reddy's Lab, Bharat Heavy Electricals and Ashok Leyland on Friday.
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