Mumbai: The dark clouds over Indian stock bourses are getting bigger and foretell trouble for timid investors in the coming weeks. For the smarter ones, however, the rising panic would be an opportunity to grab blue-chips at a bargain.
The widely tracked top-30 Sensex fell 2.3 per cent last week, its third successive weekly slide, to the lowest close since early September and is set to post its biggest monthly fall this year.
"The Diwali lights are still burning brightly in the shopping malls," said equity trader Hasmukh Patel. "But they have gone off in the stock markets."
From a political corruption scandal that has put Prime Minister Manmohan Singh's coalition government on the defensive, the spotlight last week shifted to a loan bribery scam involving financial firms and companies in the infrastructure-related sector.
In a sudden move on Wednesday, the Central Bureau of Investigation (CBI) arrested eight officials, including from state-run institutions such as LIC Housing, Bank of India, Punjab National Bank and Central Bank of India and private financial services firm Money Matters, saying they were involved in the bribes-for-loans scandal.
Investigation
The CBI has said it is probing more than 20 companies, which include property developers, road builders, construction and energy firms. With 24-hour news channels focusing on the investigation, and putting out nuggets of allegations, investors were jittery.
The Sensex has plunged almost 11 per cent since hitting 21,108.64 on November 5 — the Diwali session that marks the new year for the trading community. On Friday, the benchmark touched a low of 18,954.82 before closing at 19,136.61.
The BSE realty index dived almost 15 per cent at one stage on Friday, and although it trimmed the fall to 4.6 per cent at close the panic was unlikely to subside any time soon.
The shaky sentiment will affect the fund raising plans of companies. Claris Lifesciences was forced to cut the indicated price band of its Rs3 billion (Dh24 million) IPO by 20 per cent to Rs228-Rs235 from Rs278-Rs293 and extend the closing date by three days to December 2.
"The scandals have jeopardised the near-term outlook for the stock market," said Patel. "I wouldn't be surprised if the Sensex drops below 17,000 by Christmas."
The telecoms scam has paralysed parliament since November 9 and has severely undermined the government's ability to move key economic measures such as opening up the insurance sector, allowing foreign retail chains like Wal-Mart to open shops and banking and mining reforms.
There is increasing frustration the government has been stalling an opposition demand for a joint parliamentary probe into the telecoms swindle because it wants to hide something.
"There has been a smokescreen behind what is really the so-called scam, which really is out-of-turn allocation of spectrum, hoarding of spectrum by important players for free, and things of this nature," Ratan Tata, the head of Tata conglomerate, said in an interview to NDTV.
Resignation
The scandal has already led to the resignation of telecoms minister A. Raja and the prime minister had to answer embarrassing questions by the Supreme Court about a long delay in pursuing complaints.
"I wish the government would take a stand, bring order ... have an investigation, book people who are guilty of something," Tata said.
There is also scepticism the bribes-for-loans was disclosed suddenly, partly to divert attention from the far bigger telecom swindle.
"The latest scandal is more of a red-herring; the amounts doing the rounds are negligible," said one fund manager at a foreign institution, who did not want to be named because of the sensitive issue.
He said the scandal would keep prices depressed as the year winds down. But fundamentally, India's economic expansion story remains firmly on track and the rising middle class of more than 300 million people will be the engine of growth for many years to come.
"There's a silver lining," he said. "A good correction is going to make this market far more attractive to a whole lot of new investors waiting in the wings. I would be looking to accumulate stocks when they fall."
The writer is a journalist based in India
