BSE nervous as US markets fall like there's no bottom

BSE nervous as US markets fall like there's no bottom
CHIDANAND RAJGHATTA

WASHINGTON, APRIL 15: Panicky investors and stunned analysts searched for words to describe a stock market slaughter that sent major American indices tumbling down on what quickly came to be known as Black Friday, an event that could cast a shadow on Monday elsewhere in the world markets, especially India.

All three major American indices -- the Dow, Nasdaq and S&P -- plunged by record margins on the basis of what analysts said was an unexpectedly high consumer price index numbers issued by the US Labour Department on Friday.

The numbers seemed to precipitate a slide that had begun on Monday, particularly for the tech-heavy Nasdaq which many upstart investors prefer.

The Nasdaq fell 355 points -- nearly ten per cent for the day -- to drop down to 3321, a level not seen since last November. The Dow fell 617 points (5.66 per cent) after being more than 700 points down at one stage. The Standard and Poor Index, which reflects a broader market, went down 83 points (5.83 per cent).

For all three indices it was their biggest one-day point decline in history, as waves of panicky selling swamped the market on Black Friday, especially towards the end of the day when investors began to bail out fearing a truly precipitous crash.

The Nasdaq has now fallen 34.2 percent from its March 10 high of 5,048.62. The question on everyone's lips: Is this the bottom or will it go down further?

The answer is mixed but many analysts seem to believe there could be further heartbreak. Technology stocks have been so inflated, they say, that a further depreciation would be well-deserved -- a petrifying thought to millions of investors who are neck-deep in tech stocks.

``At this point the market, especially the Nasdaq, has come too far too fast, and this (fall) is actually longer-term positive,'' Hans Kashyap, President of Analytics Research Corporation was quoted as a telling a wire service. Kashyap is looking for the market to stabilise in the near term at the 2610 to 3000 level.

But speaking on CNBC, Goldman Sachs analyst Abby Joseph Cohen, who is considered the oracle of Wall Street and is a great believer in techdom, said the US economic expansion is ``far from over'' and forecast that corporate profits will still go up.

``I think what we have seen (today) is very much a market event rather than an economic event,'' Cohen said. ``As we take a look at expectations for earnings, economic growth and so on, really nothing has changed over the past two weeks.''

The words must have sounded cruel to US investors who are estimated to have lost a whopping $2 trillion on the markets since Monday -- about $7,000 for every American.

And for the moment at least there were no believers and the cassandras clearly outnumbered the polyannas. Investors dumped every other stock along with the tech holdings, including solid blue chips from the traditional market, bringing about the broadest and most dramatic one-week slide in history.

For India, there could be a serious fall-out on Monday. Like the US market, the Indian market too has taken a fancy for tech stocks. Despite the gradual downward drift, many analysts believe some of them are overpriced. And since the Sensex now takes the cue from Nasdaq, it could well turn out to be a Manic Monday in Mumbai.

The Nasdaq nosedive also comes at a bad time for Indian companies that planned a US listing -- especially Zee Telefilms and Rediff -- which were expected to be first off the blocks. Many US companies are postponing their Initial Public Offerings. Only 25 of the scheduled 50 came to the market this week and four of 22 slated for next week have already pulled out. That includes the search engine Alta Vista, a Compaq spin-off, which had plans to sell 14.8 million shares at $18 to $20 a share.

Indian-owned companies listed on Nasdaq were also whipped. Satyam and Brocade dropped 22 per cent each, while the famed Infosys lost 18 per cent and Sycamore lost a further 15 per cent. All four companies now stand at half and one-fourth of their peak value -- a fate they share with scores of American companies that have also been lashed.

Burnt investors feared a conflagration on Monday as bear analysts who had sat back and watched the tech run up in disbelief and envy gloated about a further free fall. Even at this level, they argued, tech stocks are still overpriced.

According to one estimate, to get back to when Federal Reserve Chairman Alan Greenspan first triggered debate with his December 1996 warnings of ``irrational exuberance'' on Wall Street, the Nasdaq would have to fall another 61 per cent.

That would be death for an army of day-traders who have sprung up in the United States -- people who sit in front of their computers, oftenat home, and trade stocks all day long for short-term gains. Most of them are heavily invested in tech stocks, often in the margins (i.e., borrowing money from their brokerage accounts).