Consolidation to follow recovery

Mumbai: The odds favour Indian shares consolidating after they pulled off a dramatic recovery late last week, with investor sentiment getting a reprieve as the US government went into full damage control to restore confidence in the battered financial markets across the world.

Much of the outlook would depend upon how foreign portfolio investors behave after the traumatic events last week, when billions of dollars of investments vanished when a fin-ancial tsunami sank US investment bank Lehman Brothers, forced the sale of Merrill Lynch and the American International Group barely survived after an emergency bailout.

"It's going to be a long road to rebuild confidence," said equity trader Harish Vora. "There is a sense of relief, but it is the calm after a devastating tornado laid everyone low."

He said the integration of domestic markets to developments elsewhere was in full evidence when shares tanked in unison, as rattled foreign investors cramped the exit to salvage whatever they could.

Outflow

Data from the Securities and Exchange Board of India showed foreign funds dumped shares worth over $1.8 billion (Dh6.62 billion) so far in September, swelling the outflow to $9.2 billion in 2008.

The widely-tracked Sensex plunged at one stage below 13,000 points for the first time since mid-July, taking some blue chips to multi-month lows. However, on Friday, the index rebounded 5.5 per cent in its biggest single-day rise in two months to 14,042.32.

ICICI Bank, which slumped nearly 12 per cent in the first four days, pulled back 9.1 per cent to end the week at Rs628.10 after its chief executive said the bank had ample capital and was healthy.

ICICI, with assets of $103 billion, said on Tuesday that it held 57 million euros (Dh302.1 million) of senior bonds by Lehman Brothers, and would increase its provision on the debt by about $28 million to cover half of that exposure. "I just want to reiterate ICICI Bank is an extremely healthy institution," CEO K.V. Kamath said.

State Bank of India Chairman O.P. Bhatt said it had a $5 million exposure to Lehman and expected to recover 60-70 per cent of that.

The Reserve Bank of India said it would increase access to funding to help tide over liquidity problems after the upheaval on Wall Street. It also said it would sell dollars to augment foreign exchange supply.

The move calmed the rupee, which ended on Friday at 45.82 per dollar.

Last week, Wachovia Capital Markets downgraded Infosys Technologies to 'market perform' from 'outperform', saying financial service providers - a key source of business for the IT offshore outsourcing sector - are expected to cut back spending in 2008 and 2009.

But it said the weaker rupee would help offset the negatives and help companies like Infosys and Wipro, it said.

- The writer is a journalist basedin India.