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17 September 2001

Mumbai: True, operation market salvage and support has begun. And its intention too is good: to boost investor sentiment. But, despite all the hoopla, there seems to be very little hope for the markets at least in the short-term.

Following Americas decision to avenge last Tuesdays terrorist attacks on them which many feel may extend into a long-drawn, full-fledged war there is despondency all around and the bears enjoy a very clear upper hand over the bulls, at least in the immediate future.

Seized by the fact that the Sensex had dropped 11.5 per cent last week to close at 2820, after touching a weekly low of 2,770, the government, on Sunday, took a slew of decisions at a meeting convened by Finance Minister Yashwant Sinha to stem any further bloodbath on the Indian markets.

One may remember that the Sensex at current levels has turned a full circle and is hovering at around the same levels that were in 1996-1997. In January 1996, it had rallied from 2820. In December 1996, the rally-point was 2713, and in October-November 1997-98 the U-turn point was 2741.

Now, the steps to be taken are:

1) raising FII investment limit to 74 per cent from 49 per cent, which is the sectoral FDI or FDI limit in most sectors;

2) introduce margin-trading system, the modalities of which are going to be announced on Tuesday;

3) raise creeping acquisition stakes for promoters or directors of companies from the present 5-per cent levels;

4) payment of brokers fees to Securities and Exchange Board of India, or Sebi allowed being staggered over a period of time;

5) brokers allowed borrowing funds from banks against their existing investments, with permission to reinvest the same in stock markets;

6) strengthening Sebi by increasing the number of public nominees to four from two.

The idea behind the moves is seen as an effort to boost liquidity in the markets, which got curbed following the ban of badla, so as to prompt investors, speculators, traders and directors to buy into the market and help stem the fall.

The markets, however, have overlooked the efforts and seem to have remained unconcerned about the government steps. This is stemmed from the fact that in early trades this morning, the Sensex dropped a further 163 points to touch 2670. As did the Nifty, which lost 49 points to touch 870. Most of the stocks encountered heavy selling, with buyers refraining from entering the market.

Reflecting the market sentiments, DSP Merril Lynch chief fund manager Anup Maheshwari told domain-b: "Sentiments are too bad for any step to have any major positive impact on the market, at least in the short-term. Raising the FII limit at this juncture is unlikely to bear fruit, as fundamentals of the currency are a matter of deep concern. The same holds good for the creeping acquisition stake, which in any case has been available to promoters for quite some time now. The only thing that can do some amount of good is reintroducing the margin system. Here, too, a lot will depend on the modalities which are to be announced on Tuesday."

Investors, he said, are likely to remain cautious and stay put till the overall scenario becomes clear.

Maheshwari may well have a point because the rupee has weakened considerably in the past few days and fearing a further depletion in their portfolio, FIIs have sold heavily since Tuesday. "The pace of downside to the market may slow off and there could be some bounce-back from lower levels, but over the next couple of months equities are likely to remain very volatile," he says.

Sree Sankar, an independent investment strategist, formerly CEO SSKI and chief fund manager with DSP Merril Lynch, agrees: "Whatever steps are taken the impact will be minimum as the situation is very fluid, with a lot of uncertainty looming large. There is no sanity."

He too feels that a good margin system, likely to be decided upon on Tuesday, is the only step that can have some positive impact on the market.

SBI Mutual Fund managing director Niamatullah, however, is more hopeful and feels the steps announced by the government will tend to have a positive impact on the market. "Some way or the other, they will be helpful in boosting the sagging sentiments of the market at least to some extent."

In the meantime, no one is ready to predict what would be at the bottom of the market. Or is it a bottomless pit?

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