Fear rules sentiment

Mumbai: The terrorist attacks that shattered America still haunt - and influence - the world economy. The ghost of the dreadful drama still loomed large over the markets when the battered country resumed trading on 17 September. And the US markets took the longest sabbatical since World War I.

Fear ruled over sentiment as equities nose-dived to touch their three-year lows. This was despite a general call given earlier by many brokers, market intermediaries and high-net worth individuals to refrain from selling shares on resumption of trading on 17 September.

This was also despite the fact that the Federal Reserve, for the eighth time this year, reduced interest rates further by 0.5 to 3 per cent and discount rates by another 0.5 to 2.5 per cent, announcing its decision before resumption of trading. Nothing worked as investors sold heavily in early trades on the New York Stock Exchange, sending the Dow Jones Industrial Index crashing by over 6 per cent to below the 9000-mark.

The trading pattern was no different at the Nasdaq as tech stocks, too, received a pasting of their lives, with the Nasdaq Composite Index, like its counterpart, too, falling by over 6 per cent to trade below the 1600-mark.

Domain-B readers will remember that American markets have remained closed for trading ever since the attacks in Manhattan, the financial nerve centre of American as well as of the world economy, paralysing normal life to say the least. Emotions ran high against the perpetuators of the crime and a two-minute silence was observed before the opening bell was struck in honor of the victims of the attack

From the old economy media, insurance and airline stocks were the worst affected. Media and airline companies are expected to lose advertisement and passenger revenues respectively, like they did in the past week post-terrorist attack, in case American fight against Osama bin Laden extends over a longer term than expected.

Insurance companies have lost heavily in compensation paid to victims, which is expected to adversely affect their bottomlines as well as their financial stability. Stocks like Time AOL-Warner, Viacom, Walt Disney and Frontier Airlines were dumped by investors.

But hospital, healthcare and defense companies found buyers and stocks as Elli Lilly and E-Merck moved up on investment buying. Major tech shares such as Microsoft and Oracle also lost in value on disinvestment and lack of buying support. However, stocks of voice and data companies like Nokia and Lucent Technologies bucked the general trend on hopes of better demand for their services.

Many companies like Verity and Vignette Corporation announced buybacks to boost their share prices, but with no success. By the time trading closed, the Dow Jones Industrial Index had lost 684.80 points to close at 8920.70 and the Nasdaq Composite Index 115.82 points to finish at 1579.55.

Trading pattern was no different in other international markets earlier on during the day. The Nikkei lost over 500 points when it fell below the 10000-mark to close at an 18-year low of 9567.00. The Hang Sang and the Singapore markets, too, displayed similar trends. Shares of Cathay Pacific, a major airlines company, lost 15 per cent in value on the back of bad sentiment on airline companies.

Many investors, however, are not dismayed at the steep fall in the American markets as the general expectation was that the fall could have been in the vicinity of 10 per cent. To that extent, the markets have done better then expected.

A pension fund manager told CNBC India: We are going to pump in money in American stocks as valuations look very attractive and we continue to believe in American financial markets. He, however, did not disclose the amount he would pump in.

Most fund managers who came on CNBC said though markets were technically in oversold zones, it was still early days for any kind of major buying or revival coming in as the indices could still fall by another 5 per cent. Todays containment could have been due to a tacit understanding between major investors and the fall could gradually come about in the next few days, they said.

Moreover, risk-reward ratio, too, has tilted adversely as pointed out by Bhanu Baweja, head of research IDEAglobal. Speaking to CNBC he said: The risk element has gone up due to the ongoing uncertainty.

Indian markets, in line with the world trend, displayed acute bearish trend and the Sensex fell to an eight-year-low to close at 2680.98 after touching an intra day low of 2640.58.