NRI investors take a hit as Sensex nosedives
Monday May 22 2006
IANS
Many NRI investors in the US and Britain got a big
shock last week as they started their day by catching
up with news from India and found the Bombay Stock
Exchange taking a nosedive for five consecutive days.
"Oh my God, not again!" cried Manibhai
Patel from Nairobi as he read the news and realised
that his stocks had taken a big hit.
The big questions the panicky NRI investors are asking
themselves are: Has the bubble burst? Have they lost
their investments? Has the India success story turned
into a disaster?
The market index, Sensex, slumped by 800 points in
48 hours and ended the week down by 1,347 points.
It slumped in a more dramatic manner than it rocketed
to set a new record of 12,000 on May 11. It took the
Sensex six months from Dec 9, 2005, to May 11, 2006,
to shoot from 9,000 to 12,000 points. But it took
just one week to shed almost 1,500 points - such was
the slaughter. No wonder market analysts renamed Dalal
Street or broker's street into "Halal" or
slaughter street.
The short answer to all these questions is: Hold
on! keep two basic factors firmly in mind: one, the
economic fundamentals for India remain unchanged as
the GDP is still growing strong, the listed companies
are still making profits, the manufacturing and export
sectors are doing well, the foreign exchange reserves
went up by more than a billion dollars last week,
the inflation is under control and economic life goes
on as usual.
The second factor is that there are no 'technical'
reasons for the market to collapse. This means that
there are no scams or news of large-scale manipulation
on the exchange.
Then why did it go crazily down? Global reasons -
Markets in the West and in Asia tumbled. The US interest
rates went up, the oil prices have been zooming up,
the metal prices suffered a meltdown and the foreign
institutional investors or FIIs with heavy investments
started to sell.
Another factor which many believe triggered the crash
was the confusion caused by a circular issued by the
Indian government on taxation that indicated that
FIIs would be taxed at a new rate. On Saturday India's
Finance Minister P. Chidambaram clarified that the
circular was only intended to solicit the comments
of the public and there was nothing in it to suggest
that FIIs would be taxed a new rate. "The position
in this regard is well known to the FIIs," he
said.
"The India growth story continues to be a growth
story" and the fundamentals of the economy were
"sound and strong" - high GDP growth, buoyancy
in growth of the manufacturing sector, low inflation
and burgeoning foreign exchange reserves, said Chidamabaram,
making it clear that the demand of the Left parties
to introduce long term capital gains tax would not
be entertained.
"The government has no intention to introduce
long-term capital gains tax for securities traded
in the stock markets," Chidamabaram told a press
conference.
So can the NRI investors, FIIs and indeed the Indian
investors ride this storm? All investment experts
have advised the investors to hold on to their securities
and Mutual Funds. The market will turn around again,
but the unknown factor is when? Considering the strong
economic platform and close scrutiny of the market,
it could be sooner than later.
However, one new factor has emerged for Indian markets
- that now India is closely tied to global developments.
Unlike the Asian financial crisis of 1997, when Indian
markets remained unscathed from the meltdown, this
time the Sensex succumbed and registered the steepest
ever fall in its history as well as experienced high
volatility.
Mutual Funds, by and large, always cushion the shock
for any fall. In fact, Mutual Funds will never fall
as much as leading stocks. One, this 'managed' route
to investment, the Fund Managers, track the market
trends and reduce their exposure. In the light of
the latest bear run, the investors can reduce - or
even withdraw - their stake in Mutual Funds with exposure
to commodities. Fund houses are using this opportunity
to buy cheap, as net buyers in the market.
And this is the best time to buy before the stocks
turn around upwards again for the bull run, remembering
that stocks and Mutual Funds always rake in profits
in the medium to long run. Global markets stabilised
by the weekend and thus FIIs should start buying on
the Indian market once again.
The finance minister's statement has clarified the
picture for FIIs. Many speculators are out of the
market due to this fall as Futures and Options positions
are down. The India story is that of growth and that
means good returns.
Kul Bhushan, a media consultant, has worked abroad
as a newspaper editor and has travelled to over 55
countries. He lives in New Delhi and can be contacted
at kulbhushan2038@gmail.com
Panic stricken market crashes;
recovers after govt gets in
Mumbai, May 22
PTI
In the worst bleeding of the stock market, the sensex
crashed by a whopping 1,112 points forcing suspension
of trading and a swift action by government and regulator
that calmed panic stricken investors and brought in
a semblance of sanity.
As the UPA government celebrated its second anniversary,
the mayhem in the market rekindled memories of one
of the biggest falls on May 17, 2004 ahead of the
swearing in of Manmohan Singh as Prime Minister.
The nerve-wracking volatility in the market, which
recovered partially to cut losses to 456 points, was
triggered by a variety of reasons including apprehensions
about a payment crisis and a confusion about taxation
proposals on stock trading as also the effect of a
global meltdown.
Coming on top of the meltdown last week, marketmen
were totally caught offguard by the steep plunge this
morning after what appeared a good day with sensex
opening strong by over 200 points. Last week's crash
was attributed to speculation about higher taxes on
FIIs.
The crash came nearly an hour after the market witnessed
fluctuations coinciding with Central Board of Direct
Taxes' strong denial of reports that investors were
at the mercy of tax officials in relation to definition
of traders and investors.
Assuring investors that there was nothing amiss and
he would take all steps to avert any liqudity problem,
Finance Minister P Chidambaram went out of the way
to pacify the market even though his ministry said
that selling spree by brokers possibly led to pressures
and then a market crash.
