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Another Dismal Week

Already reeling under the ban on deferral products, a plunging NASDAQ and the UTI fiasco have given fresh ammunition to the gnawing bears

It was yet another dismal week for the equity markets. Already reeling under the ban on deferral products, a plunging NASDAQ and the UTI fiasco have given fresh ammunition to the gnawing bears. The combined impact saw the markets go down by 89 points to close at 3251.53. Stocks plummeted to fresh lows as 249 or 20% of traded scrips on BSE touched their 52-week lows. The first quarter results were no exception as largely poor numbers dampened the sentiment.

With US economy indifferent to series of corrective pill from Greenspan and the tech barometer, NASDAQ again testing sub 2000 levels, the winds from the west have added to the misery of domestic markets. The profit disappointment and earnings warnings do not augur well for the software sector, which is already reeling under from the ill-fated shadow of K 10 stocks. While in the past, the guidance for the tech counters has come from the west; the current calendar's sharp drop in valuations has largely been on account of domestic woes. Thus, while Nasdaq has lost only 11.5% for the first half of 2001, the BSE IT index has shed a whopping 44 per cent!

Sentiments apart, the slowdown in the technology sector and the broader service sector raises serious issues for the economy. The recent years have seen the fast paced service sector spearhead the near 6% growth levels. With signs of deceleration emanating from here, hopes had turned on to the better than normal monsoon to spur agricultural demand and thus buoy the economy. However, in the backdrop of a foodgrain surplus and the good monsoon adding to the buffer stocks, the likelihood of demand led revival seems over stretched. Clearly, this shifts the onus of a revival on the Government, which now has to pump-in investments with precision (no wasteful expenditure, please) and provide impetus to the economy.

The token strike by brokers early in the week hit volumes as the community joined hands to press for withdrawal of deferral products. With several brokers surrendering their membership amid evaporating volumes and many more likely to follow suit, the new trading system has come in for sharp criticism. While brokers are posting a stiff resistance to unlearn their past, the current system is surely going to work in the best interest of investors in the long run. The onus now lies on the regulator to play tough and stand by its decision on introduction of rolling settlement coupled with futures markets.

Going forward, the slew of inquiries into dubious investments of public financial institutions could dampen sentiment. So far, the market had taken the UTI fiasco into its stride but the widening net could throw up more unpleasant surprises. While the guilty should be booked for causing willful loss, let us hope this chase does not translate into witch hunting.