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The Saddam Effect

The optimism about a quick end to the war ended this week due to strong Iraq resistance. The Indian stock markets lost most of the gains made the previous week, with IT stocks being the worst affected.

With the Iraqis putting up stiffer resistance a quick end to the war may not be possible. A prolonged conflict and the associated uncertainty resulted in weakness in the equity market. Over the week, the BSE Sensex lost 2.6 per cent and the Nifty was down 2.8 per cent. The turnover of the National Stock Exchange and the Bombay Stock Exchange together fell 30 per cent this week. The S&P Mid-cap Index was down 2.4 per cent. In comparison, in the US, the loss registered by the Nasdaq and the Dow was much higher, with indices shedding 3.6 per cent and 4.4 per cent, respectively.

While all sector indices lost, the BSE IT (down 4.3 per cent) was the worst hit. Most frontline IT stocks had witnessed good volumes and posted gains last Saturday when markets had opened for a few hours. This week though IT stocks moved southwards, taking the index down too. In contrast, the BSE PSU Index was the least hurt, falling only 0.4 per cent. PSU banks witnessed some rally on the last trading day, with Canara Bank and Punjab National Bank registering maximum gains.

Among FMCG heavyweights, Hindustan Lever lost 6 per cent while ITC gained 2.8 per cent. Overall, the BSE FMCG Index was down 2.7 per cent. The BSE Healthcare lost 1.4 per cent. More specifically, among stocks, Hero Honda witnessed huge volumes on the last two trading days. Due to selling pressure, the scrip lost heavily. Overall, the scrip was down 13 per cent. Expectations of a dull Q-4 performance hurt the stock's performance. BHEL, on the other hand, touched a 52-week high on the hopes that the company had acquired new orders.

This week, SEBI introduced new norms for the IPO market. The aim: to encourage companies to tap primary markets for raising capital. Companies should have been in operation for a minimum of two-years and with net tangible assets of Rs 3 crore. The norm of three-year profitability track record has been scrapped. This is likely to revive primary markets, with more IPOs hitting the markets now.

In another major development, SEBI has taken over the management of the Ahmedabad stock exchange for one year, with effect from March 25, 2003. The market regulator took this step to stop illegal trading at the exchange. In another move, the BSE intends to serve notices to companies that are not following the listing norms. Many companies have defaulted in payment of the listing fee and haven't complied with other listing norms. The exchange has also decided to raise the transaction charges by 33 per cent, effective April 1, 2003. This will mean more revenue for the BSE, as brokers will have to shell out more on the basis of their turnover. The BSE has also removed 12 stocks—such as HDFC, BSES, BHEL and Hindalco—from the BSE F&O list since these stocks have failed to meet the SEBI eligibility criterion. This is unlikely to have any significant impact as most of derivative trading volumes come from the NSE.

This week, while the FIIs bought equities worth Rs 88 crore, mutual funds—after remaining buyers for five straight weeks—turned sellers, offloading equities worth Rs 44 crore.

With no signs of a quick end to the Gulf War II, uncertainty is likely to prevail in stock markets.