Mumbai: Until risk appetite among global investors revives, there is little chance of Indian shares halting a slide, which has now extended to four weeks and looks good to continue in the near term.

Deepening crisis in Eur-ope, where Italy and Spain seems to be heading the way of debt-burdened Greece, has dented investor confidence across markets. The inability of US lawmakers to rise above politics and deal with America's own mounting debt problem has only added to the depressed mood.

"The global chill is nerve-wracking," said equity trader Manubhai Desai.

"Everyone is watching events from Europe to the US to set the agenda and the scene is worrying."

Foreign funds have dumped shares worth more than $1 billion over some eight sessions, and there could be more outflows in the coming weeks if the situation in Europe worsens.

The sell-off has resulted in net outflows of $167 million (Dh612.89 million) for the year to date, compared with record foreign portfolio investments of $29.4 billion in 2010, according to data from the Securities and Exchange Board of India.

The top-30 Sensex, which lost 4.1 per cent last week, has shed almost 12 per cent over the past four weeks. The widely tracked benchmark fell to its lowest close in more than two years at 15,695.43 on Friday, taking losses since the start of January to 23.5 per cent.

"The market looks vulnerable," said chartist Kishan Dave. "It could slip towards 14,500 before the year ends."

Much of the pessimism stems from the flow of foreign funds, but domestic factors such as high interest rates, accelerating inflation, shrinking economic growth and falling corporate earnings are also weighing on the outlook.

The rupee's tumble, which would push up the costs of imports — especially oil that India buys to meet almost 80 per cent of its consumption — has added to the gloom.

The currency swung to a record low of 52.73 against the US dollar on Tuesday, down almost 17 per cent since late July, due to a widening trade deficit, soaring import bill and slowing exports and other inflows.

After the Reserve Bank of India intervened by selling dollars from its stockpile, the rupee pulled back to close the week at 52.23/24 but is clearly vulnerable to another slide.

"The momentum is towards a decline," said Dave. "The rupee could test 55 in the next few weeks."

Interest ceiling

The central bank has raised the interest ceiling on deposits by non-resident Indian in both rupee and foreign currency accounts to help boost attract inflows, particularly from the Gulf, and help ease the pressure on the rupee.

The government is scheduled to release September quarter GDP data on Wednesday and the picture is expected to be depressing. Thirteen interest rates increases since early 2010 have hit consumer demand and dented business confidence.

Economists are predicting growth would have slowed to its weakest pace in more than two years, at below seven per cent.

"If the data shows growth at below six per cent, which is also probable, it would trigger another sell-off," Desai said.

After dilly-dallying for a year, Prime Minister Manmohan Singh last week gave the go ahead to open up the retail sector to multinationals like Wal-Mart and Carrefour.

It was the first positive move by the ruling coalition, which has been bogged down by corruption scandals and blamed for policy paralysis, since being re-elected more than two-and-a-half years ago.

The move is expected to help foreign investment, remove supply-bottlenecks and improve infrastructure for warehousing and distribution for farm products that has been at the root of food inflation.

The decision will also revive interest in property developers as demand for commercial space such as malls rise.

"The government will have to show more initiative for similar reforms and curb wasteful expenditure to revive business confidence," Desai said.

 

The writer is a journalist based in India.