Shares sputter as war clouds hover over bourses

Monday, 10 March 2003, 20:30 IST
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The Indian stock market, which is seeing massive selling amid worries that a war in the Middle East is near, may see a bloodbath in the days ahead with the possible initiation of U.S.-led military action against Iraq.

NEW DELHI: Analysts and market traders say a war in the Middle East would send the blue-chip shares listed on the Indian bourses into a prolonged bearish grip, forcing domestic as well as foreign investors to steer clear of the trading ring. "At this stage, it is pretty conclusive that a war against Iraq is imminent. The market has been expecting this for some time now," said Neeraj Deewan, a senior analyst with Prime Securities. "Most of the heavyweight counters have been badly battered in the last few sessions' trade on fears of war. And this is just the beginning. Once the war starts, we will see a sharp crash in the market," Deewan told IANS. "The intense sell-off will be triggered by large-scale exodus of small investors in the market who will rush to seek safety in gold and government bonds." At noon Monday, the stock market barometer 30-share Bombay Stock Exchange sensitive index or Sensex was quoting at 3,126.75, a loss of 26.31 points or 0.83 percent from Friday's close. Other major Asian stock markets have also gone into a tailspin as U.S. plans to force a U.N. vote on Iraq this week suggested that war was imminent. Japanese stocks sank to fresh 20-year lows on Monday, while Australian stocks hit a three-and-a-half-year low. Other bourses in the region dropped to their lowest levels in months. The market index has lost nearly four percent in the five-day trading period ended Friday on large-scale institutional selling pressure, despite the unveiling of a market-friendly federal budget for fiscal 2003-04. With a view to attract more investors in the sagging capital market, Finance Minister Jaswant Singh on February 28 unveiled a slew of measures including abolition of tax on dividend incomes as part of the budgetary proposals. As a result of the selling pressure, a total of 250 billion worth of market capitalisation has been wiped off from the market in the last five trading sessions. "I think we can easily break the psychological barrier of 3,000-mark as soon as the war starts. With war on the horizon almost everyone is looking to sell," said a broker with the Bombay Stock Exchange. "The selling pressure is only likely to intensify once the military action starts. In any war situation, investors basically sit and not put their money into the market immediately," the broker added. American Secretary of State Colin Powell said the U.S. is close to winning enough votes in the U.N. Security Council to authorise military action against Iraq. The U.S. and Britain have massed at least 225,000 troops in the Middle East with a view to carry out an invasion to strip Iraq of its weapons of mass destruction and oust its leader Saddam Hussein. "The Indian economy will definitely get impacted by a war in the Middle East. It will also affect demand of Indian products in the global market, including in the U.S.," said analyst D.H. Pai Panandiker. Shares of old economy companies such as Associated Cement Companies and Grasim Industries have plummeted sharply lower in the last few sessions on fears that a war in the Middle East will hurt demand for their products. "As an immediate impact of the war, oil prices will go up sharply. This will result in escalation of transportation cost of the companies and affect the profitability of the Indian companies," said Panandiker. Heavyweight technology shares such as Infosys Technologies, Wipro and Satyam Computer also fell sharply in recent trade on talks that the conflict will lead to hold back in IT spending decisions and delay the global economic revival. "Shares have been battered down, but still there is no chance of any value picking at this moment because of the continued U.S.-Iraq standoff," said Deewan, adding that even foreign funds have been sitting on the sidelines.
Source: IANS