MARKETS MAKE INVESTORS LOOSE HOPE AND MONEY

[Dr. Sanjiv Agarwal]

Investors who have their investments in capital market are at a loss now a days facing uncertainty on the market behaviour, while the country is in festive mood. Investors with exposure in stocks through primary market IPOs and stock market investments, mutual fund units and other market related products are facing difficult times as the market is in free fall mood.

BSE sensex is now ruling around 15000 which is over 25 percent lower than what it used to be few months back. Many of the new primary market floats are quoting below their offer price, thus giving negative returns to investors implying that IPO offer was highly priced which could not sustain the market pressure and volatility. In fact, their price behaviour has been erratic. Fearing the lack of support from the investors, about Rs. 10000 crores worth of public offers having SEBI clearance are likely to be deferred or withdrawn, given the ongoing market uncertainty and volatility, despite the fact that promoters have always preferred to launch their IPOs during festive time as it is considered auspicious. These probable IPOs were from both – private and public sector and include companies such as ONGC, SAIL, IOT Infrastructure & Energy, Greatship (India), AGS Transact Techno, Sumatex, Lawasa Corp., Hindustan Copper etc. In many companies, SEBI approval will lapse if issue is postponed as the markets are not conducive for IPOs.

It is not onlyIndiabut a global trend. Recently Siemens AG, ADS Tactical, XiaoNanetc. have also postponed their offerings in foreign market. In US, there in a biggest backlog of IPOs since at least 2006 with 155 deals as at September end. Issuers have learnt to be more patient and are now scouting for alternative sources such as private equity, debt instruments, strategic mergers and so on.

This week’s downfall in market is again attributed to negative perception created by sensitive credit rating update on State Bank ofIndiafrom Moody. The stock market inIndiais now a days geographically and politically sensitive and as such stock indices fall in sync with related developments. When moody downgraded the rating of SBI from (C-) to (D+) on the basis of capital situation and asset quality, Indian market reacted sharply.

In case of two other Indian banks – ICICI Bank and Axis Bank, ratings have been retained by Moody’s and Fitch (C-). While ‘D’ rating suggests modest intrinsic financial strength, potentially requiring some outside support at times, ‘C’ rating denotes adequate intrinsic financial strength.

However, there is nothing to worry as other leading banks too have (D+) rating nor it is something abnormal as our banking sector is hit too by global financial and banking risk as all countries and economies in the world are closely interlinked. This downgrade could be a short term phenomena and only a consistent bad rating is alarming. Such ratings would impact the individual stocks and it may have a short-term impact on market too.

With range bound movement seen in stock market with negative bias, is it wise to invest in stocks now? For investors with risk appetite, yes, one can take a chance as a number of fundamentally strong scrips are quoting below 25-35 percent of their last year’s quote. The loss in market value is disproportionate to the risk perception or economic slow down, yet the fundamentals being reasonably goods. In some stocks, current year’s performance is good yet prices are down. One needs to identify and pick up such stocks. It could be wise in terms of trying to beat inflation over a long period. One should continue to capitalise on investment opportunities form time to time.

For risk averse investors, with gold and silver too being under pressure, it could well be a good idea to sit on cash and earn 10-12 percent interest and invest in good investment products once short term crises is over and overall clarity emerges. All said and done, the road ahead seams to be bumpy and all markets appear to be choppy on a short term horizon.

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