Weak US jobs data worries Dalal St

Sub-prime worries in the US pulled the Sensex sub-15000 once last week. On Monday morning, they might succeed again as weak US jobs data released on Friday compounded the Dow’s worries, pulling it down by 281 points.

Market men feel that domestic stocks will react to the US July non-farm jobs data and open with a negative gap. The US economy added only 92,000 jobs last month, down from 126,000 in June and the unemployment rate ticked up to 4.6%.

Job growth in July is the slowest in months. The latest decline capped a volatile two weeks on Wall Street in which the stock market has swung wildly from day to day, reflecting rising uncertainty about the outlook for markets and the risks plaguing the economy.

“The sentiments in the market have become very negative in the face of sub-prime concerns in the US and the poor jobs data. Since the investors are worried about the global volatility in the next few days, you may not see much buying even in attractively priced stocks,” said Ajay Pandey, assistant vice-president, institutional sales, Networth Stock Broking.

Most brokerages sent notes to their clients advising them to be cautious. Domestic brokerage Sharekhan warned investors its time to “stop dancing”. It saw reasons beyond the reigning fear of sub-prime worries. It raises questions about the fundamentals of the market.

“For the first time in several quarters the earnings of the Sensex companies were below expectation after stripping out the foreign exchange gain. This slowdown in the earnings momentum would become more visible from the second quarter when the forex gains will not be there. A slowdown in the earnings growth would itself lead to a de-rating of the market’s price/earnings (PE) multiple-investors would be OK paying 17-18x for a market growing at 30% but would they do the same if the growth were 15%?” questions Sharekhan in a note to investors.

But a few optimistic voices could also be heard as players cash rich domestic institutions will lend the crucial buying support in case of a heavy cut. “Sub-prime funds are hardly a part of Indian market. Whatever funds we have received from that market would be pulled back. I don’t see a major crack as the stocks become attractive buys at lower levels,” said Gaurang Shah of Geojit Securities.

Shah said though he expects volatility to continue in the face of global worries, he expected the Nifty to trade within a 100-point range taking support at 4325 and resistance at 4430.

Markets will also closely watch out of US Federal Reserve’s policy meeting on Tuesday, August 7, 2007. Any soothing comments from the US central bank about the health of the world’s biggest economy may support global equities.