WHO WILL GO DOWN NEXT?

“Who is next?” That seems to be the biggest question and the reason for the extraordinary uncertainty prevailing in the world financial markets. Clearly the US Govt coming to the rescue of AIG did not help recoup the sentiments and the fear psychosis continued till the mid morning, after which the Asian markets and the Indian markets staged a recovery. For India, the Finance Minister coming out and assuring that India need not panic and going on record to state that Indian banks, especially the PSU banks had virtually no exposure to Lehman helped bolster the sentiments. Mr.Chidambaram stated that the Govt would be going ahead with its reform process and expected the Indian economy to grow at around 8%. Dalal Street felt assured and banking stocks were the first to recover.

Prior to this assurance from the Finance Minister, the moods remained despondent and all eyes were on developments unfolding in USA. The market has now learnt to read the signs and based on yesterday’s market data, it has emerged that Morgan Stanley was a major seller on Dalal Street. Morgan Stanley Mauritius Company, the company through which Morgan Stanley trades in India, executed block deals through P-Note transfers. It sold stocks worth Rs.871 crore. It sold 25.51 lakh shares of United Spirits at Rs.1,328 per share which was entirely purchased by Goldman Sachs. It sold 57.47 lakh shares of Pantaloon Retail at Rs 359 per share and this was purchased by Deutsche Securities Mauritius. It sold stocks of Educomp (5.32 lakh shares); Jindal saw (17.72 lakh shares); Subhash Projects (8.1 lakh shares) and all these were also purchased by Deutsche Securities Mauritius. It also sold Opto Circuits (7.53 lakh shares) to JF Eastern Smaller Companies Fund and Gujarat NRE Coke (18.31 lakh shares).

Morgan has totally invested Rs.11,200 crore in Indian stocks and this sell off yesterday, indicates that it has sold off around 8.5% of its total holdings. But the point to be noted here is that for every sale, there has been another FII buying, everyone is not just selling and running off. Doesn’t this mean that some well-to-do FIIs (a rare breed today!) are still favourably disposed towards India?

This is exactly what happened before Bear Stearns publicly announced that it was in irreversible trouble and ditto with Lehman too. These FIIs had started selling in bulk their holdings in the Indian markets, a few days before going bankrupt, trying to shore-up as much liquidity as possible. The name of Goldman Sachs also seems to keep popping up and keeping a close tab on the trades would indicate whether it too has started selling.

News on the street is that Morgan has sent out an SOS and is looking for a suitor. The one name which is coming in is of Wachovia, the fourth largest bank of USA.

Washington Mutual is also stated to be in trouble and JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co are expected to bid for parts of USA’s biggest savings and loan company. The perception on the street is that such deals which would help bail out troubled institutions would help revive some confidence back into the world markets.

The markets also started recovering on news that UK’s troubled bank – HBOS would be bailed out by Lloyds TBS for $22.2 billion. HBOS, based in Edinburgh is the largest provider of home loans in UK. There is some sense of belief that banks and institutions which could go phut, would be bought over and might not go the Lehman way. That is the only shred of optimism on the streets now. Plus of course the fact that all that is bad will happen in this week, we cannot go down any more. The big banks going bust would mean that smaller ones would also go down but this is probably the fag end of the entire sub-prime mortgage crisis.



From here, in a fortnight from now, Wall Street would never be the same and the entire world financial scene would have undergone a monumental change, liquidity pressure would be very high, and accessing capital would be a major issue and yet, with the markets being in such an oversold position, there would be smart short rallies once rebuilding starts.