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Mumbai: Shaky Indian shares will be at the crossroads this week, looking for direction from overseas markets but wary of domestic factors such as inflation that has jumped to its highest in 10 months and sulking investors who have burnt their fingers.
Wall Street's over three per cent rebound last week with hopes for more gains after a massive injection of funds by the US authorities and a three-quarter point interest rate cut should have been the perfect setting for a relief rally by the Sensex.
But the outlook remains clouded for investors whose blue-chip stocks deposited with brokers were dumped in a falling market at huge losses. Many financiers had also sold off stocks held as collateral for loans, causing more pain to investors. "Trust built over years has been broken," strategist V. Venugopal said "The wounds would take time to heal."
In one instance, K.R. Rao, founder and managing director of Chennai-based Orchid Chemicals and Pharmaceuticals, said he regretted taking a loan to buy shares.
He alone lost Rs750 million after the lenders liquidated 7.5 per cent of the family's holdings in the company last Monday.
Rao and his family were financed by Indiabulls and Religare Finvest, who had thresholds that required the borrowers to raise margin money if the stock price fell. With little time to meet the call, the lenders had dumped the stocks.
"There is so much fear that the investors have become loss averse," said Parag Parikh, chairman of Parag Parikh Financial Advisory Services.
The US credit meltdown has had its repercussions in Indian shares. Bear Stearns, which was bought for a fraction of its market value last week by JP Morgan, was a big seller of holdings in India.
Data from the National Stock Exchange showed the troubled US bank sold shares worth Rs10 billion in two days. Among the shares were Jaiprakash Associates, Jindal Steel & Power, Madhucon Projects, Opto Circuits, Havells India, S Kumars, Lakshmi Energy & Foods, Usha Martin and KS Oils. Bear Stearns also holds tiny stakes in some 120 Indian companies.
Still, the Sensex pulled back from a tumble last Monday, when it plunged nearly 1,000 points to a seven-month low, to finish the holiday-shortened week down 4.9 per cent at 14,994.83 - its third weekly loss in a row.
Overselling
"The market is oversold as reflected in the relative strength indicator," said chartist Kanu Dave. "There could be small rallies but the momentum will be clearly lacking and resistance could mount."
"Watch the 200-day moving average," he said. "If it moves down, the bears will be all over you."
Advance taxes paid by companies on March 15 show a slowdown in the offing. DLF Ltd, India's biggest listed property developer, paid no advance tax for the March quarter. It had earlier paid Rs4.23 billion in three earlier instalments for 2007-08, compared with Rs1.32 billion in 2006-07.
Emaar MGF Land, a unit of Dubai's Emaar Properties, also had nil outgo in the March quarter after paying Rs900 million already for 2007-08.
The company's $1.8 billion initial public offer was pulled in early February after market turmoil cooled investor appetite.
Venugopal said there was little comfort about the US economy and worries continue about more writedowns.
"The Sensex has lost more than 26 per cent this year. It would be foolhardy to say the market has bottomed out.
- The writer is a journalist based in India.
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