Markets crash, grim outlook for next week

NetScribes/Ganesh Ramamoorthy

The bloodbath at the Indian stock markets on September 22 could well turn into a massacre on September 25. A cross section of the marketmen are of the view that the markets will certainly open below the 4000-mark but recover ground towards the end of the week.

Despite a huge drop in the Sensex, the outstanding positions at the BSE remained at more or less the same levels of last week at Rs 2.8 billion. A dealer at Choksey Securities said, "There is a huge shortage of funds, hence many are exchanging their stocks to get funds." The dealer further said that the badla rates were quite low at about 11.5-12 per cent, whereas last week the badla rate was hovering around 14.5 per cent.

With the prevailing low badla rates and reasonably large outstanding positions on September 22, there is also a growing concern that a section of the stockbrokers could be hit by a payment problem. "A payment crisis could definitely surface in the market, given the scarcity of funds in the market," the dealer at Choksey Securities said, and added that the scenario will become clearer by September 25 morning.

The stock markets have already factored in the oil price concerns, so any subsequent rise in oil prices will not impact the Sensex further, brokers said.

Ketan Jhaveri, chief dealer at Kotak Securities said, "The main concern next week will be how clients pay up their monies to the brokers. Until this scenario does not become clear, the uncertainty will continue."

Rajiv Choksey of Choksey Securities, a BSE brokerage, said, "The market has fallen by over 500 points this week. With the fall being so substantial, it will take time for the recovery to come about. This week's fall has been largely on account of the concerns over the oil price hike, hence considering that the government will announce the necessary hike of 20 per cent for oil prices, the maximum impact of the same on petro products would be about Rs 6." The oil price hike was deferred at the cabinet meeting on Saturday.

He added that the actual impact would be just around Rs 3, with auto and petroleum stocks likely to gain and cement stocks likely to tumble further in the coming week.

Sudanshu Pandey, an analyst with LKP Shares and Securities said, "A short-term downtrend has resumed. The Sensex will mostly open lower on September 25 and dip further to test support at about 3,800-level. However, after what happened on September 22 at the bourses, it will be really hard to guess what will happen on September 25."

Opening from the previous close of 4,257, the Sensex dipped by about 225 points or 5.3 per cent to close at 4,032 on September 22, due to panic-selling by investors as bears hammered stocks mercilessly. Even though both new economy stocks and the old economy stocks were hammered, it was the software and media stocks that had to bear the brunt of the market.

However, analysts say that given the downtrend in the market, software stocks and other technology stocks, in general, are a good buy at current prices.

The downtrend may continue for another two weeks, but thereafter, the market will pick up momentum, said an analyst with a Bombay-based institutional brokerage house and recommended a "buy on decline" for software scrips. However, the market is wary about where the buying support will come from. "With FIIs selling aggressively, there is little buying support for tech stocks now. Nobody is willing to buy tech stocks and unless normalcy returns to international markets soon, domestic tech stocks will remained subdued," the analyst said.

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