Faculty Of Management Studies Delhi University North Campus New Delhi

TRACKING THE INDIAN STOCK MARKETS: FROM 20K to 20K

By Sanchit Sawhney-Faculty Of Management Studies,New Delhi Mob +91-9015053020 Prashant Kumar- Faculty Of Management Studies,New Delhi Mob+91-9716441463

Batch-2010-12 FMS

Masters Of Business Administration (Full Time)

Faculty Of Management Studies Delhi University North Campus New Delhi

SENSEX 20K To 20K

Sensex had a dream run when it crossed 21000 levels on 8th January, 2008, riding the wave of frenzied buying by local funds and limited selling by Foreign Institutional Investors. The local institutions were in the drivers seat. As per BSE data, foreign funds net sold over Rs 1,100 crore worth of shares over the last three trading sessions on the day while local funds net bought over Rs 2,300 crore worth of shares. The market breadth was of concern, because for every 5 stocks that rose, 4 fell in value. However, after trading in the whereabouts of 18,000 for two weeks, the markets tanked on 21st January, 2008 with the Sensex closing at 17,605. The primary reason for this sudden fall is believed to be the fallout of the subprime crisis in USA. Once the signs of global recession began to surface and the US sub-prime crisis hit the market hard, several Foreign Institutional Investors began off-loading their holdings, making the Sensex plummet. The Sensex continued to fall till because of rising crude oil prices, which hit the ceiling of $145 per barrel in July, as well as FIIs taking over $6.45 billion out of the Indian markets. The next shock came in the form of Lehman Brothers filing for bankruptcy on September 15, 2008 and Merrill Lynch being taken over by Bank of America. This coupled with terrorist blasts in New Delhi shook investor confidence in the stability of the market and resulted in the Sensex closing at 13, 531. The Sensex continued to fall because of frenzied selling on recession worries. The Sensex had fallen to 10,450. Following extremely negative global financial indications, the Sensex fell below the 10,000 mark, closing at 9,975 on October 17 and 8,719 on October 24, 2008. Coordinated policy actions by the Indian government and the Reserve Bank of India to boost the economy recover to above 10,000 by the end of 2008. To control the downfall RBI responded by slashing the proportion of deposits that banks must keep with the central bank by

Masters Of Business Administration (Full Time)

Faculty Of Management Studies Delhi University North Campus New Delhi

one percentage point, in addition to a 50 basis points reduction announced earlier. The moves pulled bank shares off their lows, but most ended in negative territory, with the sector index losing 7.8 per cent while HDFC Bank slipped 5.4 per cent to 1,046.35. The world equity index fell to a five-year trough and equity trading in Russia, Iceland, Austria, Ukraine and Indonesia were halted while nearly half of Milan stocks were suspended for excessive losses just hours before finance chiefs of seven rich nations meet in Washington. Strong results by Infosys and a US government bailout of Bank of America, the markets kept improving, though slowly throughout the year. With President Obama, coming out in support of the economy and providing huge bailout packages, slowly the investor confidence returned to the stock markets. Sensex shot up by over 2000 points in response to UPAs victory in the general elections. Following strong domestic growth, a drastic fall in crude prices and strong monetary and fiscal policy support from the government, the markets continued to recover throughout 2009 and Sensex closed above 17000. To further Improve the liquidity of the financial systems by releasing the funds of the banks impounded with the RBI. This resulted in lowering the interest rates,which in turn helped to restore confidence in the solvency of the banks. In the first half of 2010, Sensex lost points amidst fears of the Greek crisis spreading to other Euro zone countries, but overall maintained its position in 16-17000s. It ended July on 7,886. The outlook for the rest of the year is positive, yet cautionary. Analysts do not want to predict huge increases because of the lingering shadow of the debt crisis, but the Sensex as expected has touched 20K on 21st Sept, 2010 again after a long tussle.On September 30, 2010, the last trading day of the quarter, SENSEX closed at 20069.12 points. The absolute points of SENSEX variation (over the previous days closing SENSEX) which would trigger market wide circuit breaker for any day in the quarter between 1st October, 2010 and 31st December, 2010. Sensex dream run during last quarter of 2008 and then the steep fall may be attributed to a lot of FIIs influence on the market. During a crisis situation the FIIs are the first to withdraw their money from market thereby evoking strong responses and swings. Based on strong fundamentals of Indian banking system and stricter controls the Indian market showed signs of recovery in the shortest time. The Sensex run seems to be a lot dependent on mood of investors particularly FIIs and the government has also been generous in keeping a bull run. The recent increase in domestic demand and the record Industrial output growth coupled with strong GDP growth projections of

Masters Of Business Administration (Full Time)

Faculty Of Management Studies Delhi University North Campus New Delhi

around 9 % will further fuel the bull run of Sensex. However the inflation if not controlled can act as a dampener to the buoyed mood.

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Masters Of Business Administration (Full Time)