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Monday, September 29, 2008

Market set for crash on US bailout denial

MUMBAI: The rejection of the $700 billion financial rescue plan of US government and the resultant crash in world markets will have similar effect on the Indian markets when they open on Tuesday.

The rejection of the US plan has heightened concerns that more banks will fail and global credit-losses will widen, leading to a deflationary situation.

A huge 210 points discount in Singapore Nifty futures today also points to a gap-down opening of 160-200 points for Nifty. Foreign players have net sold Rs 546 crore in futures while they net bought options to the tune of Rs 246.11 crore on Monday.

The House of Representatives voted down the US government’s financial rescue plan intended to restore confidence in the US banking system. US markets sank as the House rejected by a vote of 228-205.

Today Asian markets tumbled--imitating the US market losses--on concern the money market situation will worsen and hasten the global slowdown. Japan's Nikkei was down 4.17 per cent, Taiwan's Taiex plunged 6 per cent, Korean Kospi fell 3.31 per cent and Philippines PSEi nose-dive 5.68 per cent.

Indian markets closed sharply lower Monday, following undesirable developments in Europe and US. Players battered the markets on fears of more corporate failures and US bailout plan failing to resolve the credit crisis, even if passed.

“Given the awful conditions in global markets, nobody is certainly positive on the markets. The Sensex has taken an intraday support at 12402 after resistance at 14000. The primary trend remains down and failure of 12500 would warn of a down-swing with a target of 10000,” said Anand Sinha, equity strategist at Raxson Wealth.

“Failure of US treasury secretary Paulson's bailout plans is certainly terrible news for market sentiments and Nifty may go down to 3500 levels. We are advising players to go short on markets for the target of 3500. However, only long funds may step in and buy as valuations look attractive,” said Sinha.

Due to the collapse of several iconic American institutions, market sources point out that punters are exiting IT stocks having exposure to the US BFSI sector. And we may see more damage for the IT stocks Tuesday.

“Global markets are under extreme pressure. If nothing is done on the credit-market front, we may face a depression worse than 1930s. The plunging stock markets are spreading nervousness to commodity markets also. Reuters/Jefferies CRB Index plunged 5.9 per cent on Monday indicating serious problems ahead,” said Ramesh Chauhan, economist at Spark Advisory.

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