Forex

The fact that stock futures of many Nifty stocks were trading at a huge discount to their spot prices — an unusual phenomenon — lends some credence to this theory.

A spiralling inflation and interest rate has already cast a shadow on several sectors such as banking, auto and real estate. On Friday, there was more bad news in the property space, with a downgrade of the debt papers issued by Sobha Developers. This is one of the first downgrades in the sector.

Bears tightened their grip as inflation climbed further to 11.42% and the political situation at the Centre remained fluid. “A further rise in the oil price will, unfortunately, continue to be particularly bad news for India,” broking house CLSA said in a note to clients.

“This is both despite and because of the Reserve Bank of India’s increasingly pre-emptive monetary tightening stance,” the note said, adding that “a re-test of the 12,000 level on the Sensex cannot be ruled out in these circumstances and that will be accompanied by a further weakening in the rupee.” The broking house, however, said a decline to 12,000 level would be a “massive long-term buying opportunity.”

For all the uncertainty over UPA government’s future, brokers feel that politics is not as big a cause for worry as inflation. “Market has discounted politics, because the government’s immediate priority is its own survival, and not any major policy measures,” said a veteran BSE trader, adding that it would not make much of a difference to sentiment if the government lasted for a month or three.

Elsewhere in Asia, Chinese markets declined by over 5%, while markets in Japan, Singapore, Hong Kong, South Korea and Taiwan were down between 1% and 3%.

In the US, the Dow was trading marginally higher in early trade, though it was still close to its 21-month lows.
Even as stock prices are plunging rapidly, there is no talk of any brokering house or prominent market player facing a solvency crisis. This is because there are no major outstanding positions in derivatives as was there at the beginning of the year, just before the market went into a free-fall.