Market may lose further ground due to Asian weakness, FII sales

Weakness in global markets and continued FII sales may pull the market down further today. Key benchmark indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were down by between 1.5% to 2.8% on Monday (5 March). Chinese market was the lone survivor of Asian fall. The Shanghai Composite was up 0.5%

US stocks plunged on Friday (2 March) following European and Asian markets lower as diminished investor appetite for risk capped one of the most punishing weeks for global equities in years. In volatile trade, the Dow Jones industrial average ended down 120.24 points, or 0.98%, at 12,114.10. The Standard & Poor's 500 index ended down 16.00 points, or 1.14%, at 1,387.17, while the Nasdaq composite index ended down 36.21 points, or 1.51%, at 2,368.00.

It was the weak global markets which spooked domestic bourses last week. The turmoil on the global markets began with a steep slide in China. With the Japanese currency yen bouncing back against the US dollar, a near 9% fall in Chinese stocks on 27 February, followed by a 3.2% fall in Dow Jones Industrial Average on the same day, prompted some investors to cut carry trades, where they borrow cheaply in Japan and invest in countries with higher yields. Hedge funds have been borrowing funds in yen due to low interest rates in Japan and redeploying them in other assets, a source of liquidity that has fueled speculation in the stock market and other asset classes.

FIIs have pressed substantial sales over the past few days in contrast to an intermittent surge in inflow in February 2007. As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March, the day when Sensex had lost 273 points. Their net outflow was worth Rs 3080.80 crore in four trading sessions from 26 February to 1 March 2007. This was in contrast to a robust inflow of Rs 2909.90 crore in five trading sessions from 2 February to 8 February. The inflow had surged early February following an upgrade in India’s sovereign rating by global rating agency S&P on 30 January 2007.

FIIs were net sellers to the tune of Rs 47 crore in index-based futures on Friday. They were net buyers to the tune of Rs 91 crore in individual stock futures on that day. Nifty March 2007 futures settled at 3690.30 on Friday, a steep discount of 36.45 points over spot Nifty closing of 3726.75

Trading on the bourses has been extended by 45 minutes till 16:15 IST starting today due to sun outage. The extended trading hours are till 19 March. Trading on NSE will be stopped from 11:45 IST to 12:25 IST daily during this period due to the sun outage.

A section of the market believes that the current fall offers a good buying opportunity for long-term investors. From a lifetime closing high of 14652.09 on 8 February, the Sensex has lost 12%. It is down 6.5% in calendar 2007 so far. Deutsch Bank in its post budget report states that Bhel, Infosys, Punjab National Bank and Grasim (a high-risk, high-return play) are its post budget top picks.

UBS shares a similar view. ‘Post the recent correction, relative valuations don’t appear as expensive as they used to be. India is now the fourth most expensive market in Asia compared to the most expensive status that it used to have about a month back’, it states in a post budget report. At current levels, Sensex is trading at 15.8 times one year forward EPS – an 8% premium over long term average of 14.6, the report states.