Investors in India stay on the defensive

Mumbai: There will be no respite for weary investors in Indian shares this week as laggards like car and truck makers announce their quarterly results and the outlook for companies offers little comfort for a turnaround in the near term as consumer spending remains downbeat.

The Reserve Bank of India (RBI) holds the trump card for any recovery when it sets monetary policy on Tuesday for the March quarter, but the central bank is unlikely to announce a much-needed reduction in interest rates after it lowered them earlier this month.

Adding to the pressure would be the expiry of derivative contracts on Thursday. Players usually roll over their positions, but this time they might want to square off rather than risk a further fall in prices.

"The mindset is firmly defensive at the moment," said equity trader Anmol Mehta. "People are getting out of risky assets and sitting on cash."

The top 30-share Sensex tumbled below 9,000, sliding seven per cent last week to 8,674.35, its worst close in two months. The weekly fall was the steepest since late December and the third in a row.

Chartist Kanu Dave forecast the index could head towards 8,000 in volatile trade this week, with every bounce back triggering more selling. "The momentum is clearly southwards," he said. "The support levels are very weak and the economic data are mostly distressing."

Foreign institutional investors (FIIs) have been setting the trend for the market and this is expected to continue in the near future. Latest data from the Securities and Exchange Board of India showed the funds sold shares worth a net of almost $1 billion (Dh3.67 billion) between January 1-22, following $13.3 billion they took out in 2008.

"The FIIs are under tremendous redemption pressure from their investors because of the weakening global economic landscape," Mehta said. "The pressure will rise as more grim data come out."

The outflows weakened the rupee by 0.9 per cent last week to 49.25 a dollar and could push it towards 50 in the near term.

With Indian markets having integrated to the global economy over the past few years, the problems in the developed world are causing much unease.

Among the major losers last week were outsourcers like Wipro, Infosys and Tata Consultancy Services as more doubts surfaced about the worsening economic conditions in the US, which is their main market.

"The Indian market remained at the mercy of global cues," said brokerage India Infoline, adding expectations also belied that new US President Barack Obama would change the tide. "The bears seem to be chanting: Yes We Can," it said in a report. "The Obama magic seems to have vanished at the bourses as US markets recorded their worst presidential inaugural day decline."

Prime Minister Manmohan Singh's Economic Advisory Council said on Friday India's economy is likely to growth almost 7 per cent in 2008-09, slower than an earlier forecast of 7.7 per cent and below nine per cent or more in the previous three years.

Mehta said the grim data coming from elsewhere would also weigh on the market.

On Friday, a composite index of Europe's manufacturing and service industries contracted for an eight month in January to 38.5 compared with 38.2 in December, which was the lowest reading since the survey began in 1998.

Last week the UK, which is battling one of its worst banking crises, said its gross domestic product shrank 1.5 per cent in the fourth quarter in the biggest fall since 1980, sending its stock market and the pound skidding lower.

"This is undeniably grim," Stewart Robertson, an economist at Aviva Investors in London, which manages about $230 billion in assets, told Bloomberg. "Two or three quarters more like this and you're talking about depression, not recession."

Many British funds have invested in Indian stocks.

The situation closer to home is also troubling. China's economy expanded 6.8 per cent in the December quarter, the slowest in seven years, and is expected to lose more momentum in this quarter.

Falling Chinese demand could hit Indian miners, such as Sesa Goa and NMDC Ltd and eventually squeeze metal prices, hurting companies like Hindalco, Tata Steel and Sterlite Industries, Mehta said.

Among the big companies announcing results this week are Tata Steel, Tata Motors, Maruti Suzuki, Oil and Natural Gas Corp, Mahindra & Mahindra, Steel Authority of India and Hindalco.

- The writer is a journalist based in India.