Two Years After Bse Peak, Future Is Bleak

The Bombay bourse is the country's oldest stock exchange.

The 30-share benchmark index of the Bombay Stock Exchange hit a record 4,643.31 on September 12, 1994, on frenzied buying by foreign funds in the first flush of liberalisation.

In afternoon trade on Wednesday, the BSE Index was trading at 3,393.16 points, a 27 percent decline from the 1994 peak.

The index has fallen nearly 17 per cent from this year's high of 4,069 on June 18.

I don't expect a recovery in share prices. The market will at best start discriminating, but the broader market will continue to remain stuck in a bear cycle, said broker Ramesh Damani.

 

The country's stock markets were opened in 1992 as part of economic reforms begun in 1991 after four decades of insular socialist controls that abhorred foreign investment.

The boom lured hundreds of thousands of small investors to the bourses. Scores of companies raised large amounts of capital through floatations at inflated premiums.

The bubble burst in 1995, leaving unwary investors saddled with big losses and worthless pieces of paper.

The driving out of retail investors is the proximate cause of the market decline, said Damani.

Sunil Kothari of brokers Nagindas Kothari said a recovery at this point of time seemed difficult. From a short-term view of the market, I remain a pessimist. The BSE index is likely to trade in a narrow range, he said.The fractious 13-party coalition that took power last June, combined with a liquidity crunch and a disappointing 1996/97 Budget, have all added to the pressure on share prices.

Sanjeev Mohta, head of research at securities firm James Capel B&K, said politics has been a persistent bugbear on the bourses. Everybody is adopting a wait-and-watch policy.

It is unbelievable to find many stocks which are available at their cheapest rates in nearly five years, said Shitin Desai, vice-chairman and managing director of DSP Financial Consultants, the Indian associate of Merrill Lynch.

Increased competition in the form of on-line trading by the newer National Stock Exchange (NSE) at the end of 1994 forced the Bombay bourse to start electronic trading in January 1995.

Analysts say this has helped revolutionalise trading and made it more transparent for investors. It has surely helped investors, Nagindas' Kothari said.

Capel B&K's Mohta agreed but said: The fruits of on-line trading will come when the depository starts operations.

The BSE plans to start a depository from January 1 1997, a move that is widely expected to eliminate problems of huge share transfers that are currently carried out manually by brokers.

Despite the pessimism, brokers believe a long-term recovery is on the cards.

I expect investor sentiment to improve. The worst is behind most people, said Desai. Investment banker Lehman Brothers in its latest India review said it was overweight on the Indian market from a 12-month perspective.

The current poor sentiment represents an opportunity to buy, it said.