Market to plunge on US woes

The market is expected to edge lower after news of an emergency rescue of the fifth-largest US investment bank Bear Stearns orchestrated by the Federal Reserve revived fears about a deepening global credit crunch, triggering a massive sell-off in US stocks on Friday, 14 March 2008. The Dow Jones industrial average dropped 194.65 points, or 1.60% to end at 11,951.09. The Standard & Poor's 500 Index shed 27.34 points, or 2.08%, to 1,288.14. The Nasdaq Composite Index slipped 51.12 points, or 2.26%, to 2,212.49.

The fifth-largest US investment bank Bear Stearns said on Friday, 14 March 2008, its liquidity position had deteriorated significantly in the last 24 hours and a cash crunch forced it to turn to the Federal Reserve and JPMorgan Chase for emergency funds.

The news about Bear Stearns spooked stocks across Asia today. The key benchmark indices in Hong Kong, Japan, China, South Korea, Singapore and Taiwan were down by between 1.75% to 4.39%.

As per provisional data, FIIs sold shares worth a net Rs 358 crore on Friday, 14 March 2008. Domestic funds bought shares worth a net Rs 100.33 crore.

FIIs bought index futures worth Rs 518.12 crore and bought index options worth Rs 108.26 crore on Friday. They sold individual stock futures to the tune of Rs 78.95 crore. They bought individual stock options to the tune of Rs 60.24 crore.

A torrent of bad news spooked bourses as the Sensex hit a 6-month low on 13 March 2008, with buyers deserting the market. Adding to the woes of domestic bourses already hit by tumbling global markets were earnings downgrade recently by brokerages of ICICI Bank, India’s biggest private sector bank in terms of net profit, and Larsen & Toubro, India’s biggest engineering and construction firm in terms of order book; lower-than-expected industrial production data for January 2008; and a surge in inflation.

The hike in short-term capital gains tax and alteration of tax treatment of the Securities Transaction Tax (STT) in Union Budget 2008-09 announced on 29 February 2008 has earlier dented sentiment. Buyers have stayed away from the bourses on continued uncertainty about the extent and duration of the credit crisis caused by the defaults in the US sub-prime mortgage market.