The Hindu : Business : Sensex sheds 232 points

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Saturday, Aug 11, 2007
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Sensex sheds 232 points

Special Correspondent

U.S. sub-prime crisis continues to haunt bourses

MUMBAI: The negative news flow of realty-related U.S. sub-prime mortgage market continues to haunt Asian and European markets. Among the Asian markets, the Korean market suffered a huge loss of more than four per cent. In the domestic market realty, banking and metal stocks were the worst hit followed by oil and gas, pharmaceuticals, fast moving consumer goods and automobile shares.

Late recovery

The market witnessed an intra-day fall of 529 points before staging a remarkable recovery in the final hour of trading. The market recovered nearly 300 points from the day’s low following a rally led by information technology stocks which witnessed buying interest in the last one hour of trading on the back of a weak rupee.

The 30-share Bombay Stock Exchange sensitive index (Sensex) lost 231.90 points or 1.54 per cent at 14868.25. The National Stock Exchange’s 50-share Nifty closed down by 69.95 points or 1.59 per cent at 4333.35.

“The news flow is erratic and nobody knows what exactly the extent of the problem is,” said Prasun Gajri, Chief Investment Officer of Tata AIG Life Insurance, referring to the sub-prime market of the U.S. “Earlier, the markets believed that the problems in the U.S. in its sub-prime mortgage markets were contained. Then the news of BNP Paribas came through. Then investors started believing that the problem is spreading from the U.S. to the rest of the world.

“Therefore markets across the world fell post that news. Again, if we hear some positive news, the market will rally. One has to wait a while to get the complete picture. From the Indian perspective, the fall and volatility will present a good opportunity for long-term investors. So, given this situation, one should build up a long-term portfolio,” Mr. Gajri said. BNP Paribas Investment Partners, a part of French bank BNP Paribas, on Thursday stated that it suspended three of its funds having exposure to the U.S. sub-prime mortgage market, temporarily as a result of lack of liquidity in the market. These three funds are valued at around euro 1.5 billion while all the funds combined at BNP Paribas Investment are worth more than euro 350 billion. The European Central Bank responded to the situation of credit crunch and released funds worth $212.98 billion in two days. This created panic in the global markets.

Volatile markets

“World markets were volatile in July, with developed markets weighted down by poor performances in Japan, the U.K. and the U.S.,” said Howard Silverblatt, senior index analyst at Standard & Poor’s, a leading global rating agency. “In the U.S., the markets set a new high on July 19 and then fell 6.3 per cent by the end of the month. U.S. concerns over liquidity, housing and fixed income instruments related to housing were the chief reasons for the downturn in the markets, while globally, the events were regarded solely as a U.S. issue.”

The contagion effect hit the Asian markets as Japan’s Nikkei tumbled 2.37 per cent, Hong Kong’s Hang Seng 2.88 per cent, Taiwan Weighted 2.74 per cent, Singapore’s Strait Times 1.58 per cent and South Korea’s Seoul Composite 4.20 per cent.

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