Market Updates…

Credit crisis wipes out $20 trn of global market value

All major global equity benchmark indices hit a 52-week low on September 29-30, 2008, on account of the global credit crisis, which has slowed down the world economy. The global stock market value has plunged to $42.21 trillion on September 30, 2008, from a high of $62.57 trillion on October 31, 2007, losing almost $20.36 trillion in market capitalization.

The value of the US equity market has dropped by $5.13 trillion (26.94 per cent) to $13.92 trillion, while the United Kingdom’s market cap plunged by $1.49 trillion from its high to $2.72 trillion. France witnessed value erosion of $1.11 trillion, while Germany’s market value dropped by $773 billion from their 52-week high during the period.

Asian stocks fell the most from their 52-week high, witnessing value erosion of $6.35 trillion, compared with the decline in the US and European markets. Among the Asian markets, the Indian market was the worst hit, registering a 51 per cent drop ($914 billion) in its market capitalization from $1.81 trillion on January 10 to $894 billion on September 30 this year.

Below is the list major Asian country’s market capitalization on 30th September and percentage change in with respect to their 52 week high.

TROUBLED NATIONS
(in $ billion) 30-Sep % Chg*
India 894.07 -50.55
South Korea 659.85 -46.89
Hong Kong 1615.92 -46.01
China 2173.57 -43.29
France 1858.18 -37.38
Britain 2724.04 -35.43
Germany 1453.34 -34.73
Australia 934.54 -31.09
Japan 3479.11 -28.73
US 13918.3 -26.9
Canada 1473.47 -21.3
* over 52-week high


Realty & metal melt in sub prime heat

Realty, metal, power and consumer durables indices were among the major underperformers, each of which declined by more than 50 per cent between January 8 and September 30 this year.

Except for the fast-moving consumer goods (FMCG) and healthcare indices many of BSE sectoral indices hit their one-year low in September. Both these indices dropped by less than 15 per cent each from their January-8 levels, while oil and gas, auto and IT indices outperformed the Sensex, declining in the range of 27 per cent to 36 per cent during the period. During the same period, the Sensex dropped by over 38.4 per cent, while the S&P CNX Nifty fell by 37.6 per cent.

Indices 30-Sep Chg*
Realty 3508.8 -74
Cons durable 2929.2 -55.4
Metal 8992.1 -54
Power 2260.3 -53
Cap goods 10581.1 -47.7
Bankex 6478.9 -46.4
Sensex 12860.4 -38.4
Nifty 3921.2 -37.6
Oil & Gas 9039.3 -35.7
Auto 3675 -34.3
IT Sector 3095.1 -27.1
Healthcare 3672.2 -14.5
FMCG 2160.8 -13.8

Most of the frontline real estate companies, such as DLF, Unitech, India bulls Real Estate, HDIL, Omaxe and Parsvnath Developers, reported over 70 per cent erosion in their market value.

The combined m-cap of 44 private and public sector banks declined by 45 per cent, with ICICI Bank and State Bank of India (SBI) witnessing value erosion of Rs 50,000 crore in the last nine months.

Power, telecom, IT, steel, trading and mining sectors have seen m-cap erosion of more than Rs 1, 00,000 crore each.


Nine months in bear grip, bottom not in sight

Even after devouring investors' wealth worth $20 trillion so far this year, the US sub prime crisis refuses to die down. This is the second time in the current decade that equity investors worldwide have suffered heavily due to US-created problems. The first time they took the hit was during 2000-2001, when the information, communication and entertainment (ICE) sector crashed following a slowdown in America.

This time round, capital markets across the world have been severely battered. Dow Jones has led the mayhem by declining 25 per cent from 14,164.53 on October 9, 2007 to 10,609.66 on September 17, 2008. Owing to larger defaults in developed markets, foreign institutional investors (FII) have pulled out their investments in emerging markets.

China has been hit the most with Shanghai Composite declining 57.4 per cent between January 8, 2008 and September 30, 2008. The Indian market, represented by the 30-scrip BSE Sensex, has declined 38.4 per cent.

The BSE Sensex figured among the top three underperformers on both occasions (ICE meltdown & sub prime), indicating that the Indian market has not yet decoupled from the world. During the ICE meltdown, the Sensex had declined 56 per cent from its February 14, 2000 peak of 5,924.31 to 2,600.12 on September 21, 2001.

Foreign investors, who led the India show between 2004 and 2007, proved the decoupling theory wrong by pulling out over Rs 100,000 crore from the cash market between mid-October 2007 and September 30, 2008.

Even after this unprecedented erosion in market value, the bottom is nowhere in sight. The last bear market during the ICE meltdown had bottomed out after 18 months, and it took another 28 months for the market to regain its previous high levels. The Sensex had declined by 56 per cent then. This bear phase is just nine months old. And analysts say this one too is not going to end in a hurry. Economist Chetan Ahya, Executive Director, Morgan Stanley, says based on historical evidence, the market could take 18 months to bottom out.

Going by past experience, the pace of price fall is likely to slow down in the coming weeks. The previous two bear markets had an average weekly fall of 0.3 per cent after the first six months.

If India Inc performs well in the upcoming results season and the Reserve Bank of India takes some market-friendly measures in between, then a quick recovery in the market is possible.

However, in the second quarter of the current financial year, earnings of Indian companies, including those in the Sensex, are expected to be lower than the 14-15 per cent recorded in the first quarter. Analysts believe that capital goods, consumer goods, telecom, IT services and pharmaceuticals will drive growth, while energy, metals and others will put up a poor show.

Here is sample list of the major companies which fell during this crash.

HOUSE COLLAPSE (since January 8, ‘08)
Price in Rs Jan08 ‘08 Sep 30 ‘08 % change
Jaiprakash Associates 462 111.1 -75.95
DLF 1150.59 352.4 -69.37
Reliance Infra 2536 790.3 -68.84
ICICI Bank 1333.5 534.85 -59.89
Reliance Comm 804.3 333.9 -58.49
Tata Motors 752.29 344.2 -54.25
Tata Steel 891.8 425.6 -52.28
Grasim Ind 3400.6 1687.6 -50.37
Hindalco 189.71 97.7 -48.5
Larsen & Toubro 4332.7 2442.85 -43.62
Jan 08, 2008 market all-time high Price adjusted for bonus and right issues


Bottom-line…

However, if the bear market ends in another 25 weeks, this will be the shortest bear phase in the past 20 years.



Sources...
Business Standard

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