Sun outage...Bulls in darkness
The jungle is dark but full of diamonds...
A crash opening...hopefully the sun outage will act as the support in times like this. We have a natural cooling period between 11.45 am to 12.25 pm as the sun outage sets in beginning today till March 19. The festival of colours is over, and all we will see is red on the screen and faces of people. The bulls have their backs against the wall and there are hardly any bright spots around. If anything, bad news just doesn't appear to stop at the moment. Any bounce in the coming days should be used to hit the exit button for the short term. Staying in cash for better times could pay rich dividends in the medium to long term. Talking about dividends, companies are rushing ahead with Board meetings to decide interim dividend post the dividend distribution tax announced in the budget. Very soon, we will hear more of dividend yield stocks. When you hear pessimistic voices all around, slowly identify what best you could hold for the long term and buy it. After all they will be available at a huge discount.
Today, we expect a sharp selloff at the opening bell. US markets fell sharply on Friday. Asian markets this morning have been battered and bruised. The RBI's announcement of further monetary tightening could also play a role in driving down the sentiment. Valuations don't matter and suddenly even after a correction you will hear that the indices and stocks are still expensive. Liquidity, which has been the cornerstone of the four-year rally, seems to be deserting the bulls. This holds true for both Indian and foreign markets. We have more local troubles in the form of a Government and a central bank obsessed with inflation control. The RBI has unleashed a few more measures from its repertoire to deal with easy money sloshing around. Globally too, there are fears of the so-called "yen carry trade" unwinding and a possible (not probable as Alan Greenspan says) recession in the US.
All these factors combined makes fairly a heady cocktail and can potentially unsettle the markets further. FIIs have been heavy sellers of late and may continue to do so in the short term at least. Unless inflation cools off substantially and interest rates stabilise, we don't see them resuming their shopping spree anytime soon. Domestic investors do not have the wherewithal to hold the market. In short, this is perhaps the worst time that the bulls have ever had in recent memory. Things aren't going to improve soon. One would have to be patient.
FIIs were net sellers to the tune of Rs6.13bn (provisional) in the cash segment. However, in the F&O segment, they pumped in Rs1.5bn. On March 1, foreign funds offloaded Rs4.38bn from the cash segment. Mutual Funds were net sellers of Rs 291.2mn on the same day.
US stocks slumped further on Friday, capping the worst week on Wall Street since the first quarter of 2003. Worries abound over the possible unwinding of the so-called "yen carry trade" coupled with a decline in consumer confidence stoked fears about corporate earnings growth.
The Dow Jones declined 120.24 points, or 1%, to 12,114.10, the lowest since Nov. 10. The Nasdaq tumbled 36.21 points, or 1.5%, to 2368. The S&P 500 slid 16 points, or 1.1%, to 1387.17. It was the third fall for the broader index in four days.
The S&P 500 is down 5% since hitting a six-year high on Feb. 20. For the week, the S&P 500 was down 4.4%, the Dow lost 4.2%, while the Nasdaq dropped 5.9%. The Dow had its worst decline on a percentage basis since the end of March 2003. The S&P logged its worst weekly performance since late Jan. 2003 while the Nasdaq had its worst five-day percentage drop since August 2004.
European shares failed to retain early gains for the second session in a row on Friday. The French CAC 40 dropped 0.6% to 5,424.70 and the German DAX 30 slipped 0.6% to 6,603.32. The UK's FTSE 100 closed a fraction of a percentage point higher, at 6,116.20. The pan-European Dow Jones Stoxx 600 index lost 0.3% to 360.67.
Asian stocks plunged this morning, extending last week's global selloff. Toyota and BHP Billiton slid after consumer confidence declined in the US, Asia's biggest export market. The Nikkei in Japan was down 393 points at 16,824 while the Hang Seng in Hong Kong crashed by 511 points to 18,924. The Straits Times in Singapore slid 89 points to 2989 and the Kospi in Seoul dived by 23 points to 1391.
All benchmarks open for trading fell, except for China's Shanghai and Shenzhen 300 Index which rose 1.1%. Futures for the Standard & Poor's 500 Index in the US were recently 0.4% lower, while those for the Nasdaq Composite Index fell 0.6%.
Meanwhile, Chinese Prime Minister Wen Jiabao said that Beijing will take more steps to curb investment and lending, as the government tries to stop the world's fastest-growing major economy from overheating. The country will further regulate real estate, Wen told the annual meeting of the National People's Congress.
Separately, the yen rose to the highest level in almost three months against the dollar as Asian stocks extended last week's selloff, prompting investors to unwind riskier investments funded by borrowing in Japan. The currency also rose as a government report showed that companies investing at a faster pace than expected, adding to the Bank of Japan's case for raising interest rates. The Japanese currency has gained 9.6% in five days against the higher-yielding South African rand and 8.3% versus the New Zealand dollar as traders pared so-called carry trades, buying yen to pay loans.
In emerging markets, the Bovespa in Brazil dropped 2.6% to 42,369 while the IPC index in Mexico declined 1.2% to 26,321 and the RTS Index in Russia ended nearly flat at 1795.