Thursday, October 16, 2008

tumbling Market



Tumbling Markets

The crisis in the US financial sector has affected vulnerably not only the American economy but also the European and Asian countries. The Indian economy is also felt the pain from the global financial crisis. The impact was witnessed through the crash in the stock market. The market was shedding over 2 to 8% in every trading session because of panic selling among the investors. Since the beginning of April2008 panic selling has led to a fall of over 35% in the sensex.The index has lost over 60% from the peak of January 2008 and have been wiped out all the gains made over a long period of time, in less than ten months. 

 Rising inflation also drag the market to lower level. Double digit inflation number is continuing which peaked at nearly 13%, rised around 8%, in six months.

Even though the equity values are at very low level FII’s are not coming forward to invest in many established companies. Every bear market rally has been utilized by the investors to book their profits, because of spiral downtrends. Investors are reluctant to opt for fresh investments. 

 The situation naturally affected the plans of corporate to raise resources for their expansion and some are postponing their IPO’s because of uncertainty. Depreciation of Rupee against Dollar also add the heavy FII selling and withdrawal of money from the market The rupee has declined as much as 19% in less than a year trading around Rs49. 

The only convincing feature is the downtrend in crude oil prices to around 78 to 80 dollars from the peak of 149 dollars per barrel. It is felt that the demand for crude and petro- products may come down in the immediate future. The OPEC is thinking to cut the production to avoid further decline in crude prices.

However in rupee terms oil and other imports will be costlier, in spite of decline in crude, metal and other products. So the profit margin for the Indian corporates, those with foreign commitments may be affected. The IIP data released was much lower at 1.3% which also paved way for the market to tumble. 

The RBI has reduced the CRR by 1.5% and thereby injecting Rs.60000crore as liquidity, is a mild relief for the banking sector. The finance minister said “liquidity is the main concern and the government will take the action as when required. The IIP data is not the real picture to assess the growth, our economic fundamentals are very strong”, the finance minister added. 

A special committee has been set up to monitor the financial conditions of the country and it should come with the best measures to resolve the crisis in the market and the over all economy.