World markets are crashing

Fri, 21 Jun 09:30 am

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Over last several months, we have been warning investors time and again that the global financial markets are running a very risky liquidity-driven rally. The cheap liquidity pumped in by global central bankers has been flooding risky assets and creating unsustainable bubbles. At the same time, the economic fundamentals continue to remain weak.

Recently, US Federal Reserve Chairman Ben Bernanke hinted at a likely pull back of its quantitative easing program. In other words, if the US central bank sees the economy and unemployment levels getting back on track, it would gradually unwind its liquidity pumping program.

This has sent the global stock markets crashing over the last couple of trading sessions. Worries about China's economic slowdown have further added to the panic.

The US stock markets tanked by over 2% after have dropped 1% in the previous session. Asian stock markets have also opened the day with steep losses. Stock markets in Indonesia (d0wn 3.2%), South Korea (down 1.9%) and Hong Kong (down 1.5%) are leading the pack of losers. The Indian equity market indices have also opened the day in the red. Stocks in the banking and metal space are leading the losses. However, information technology stocks are trading firm.

The Sensex today is down by around 61 points (0.3%), while the NSE-Nifty is down by around 24 points (0.4%). Mid and small cap stocks are also trading in the red with the BSE Mid Cap and BSE Small Cap indices down by around 0.7% and 0.2% respectively. The rupee is trading at Rs 59.52 to the US dollar.

Indian pharma stocks have opened the day on a mixed note with Panacea Biotech and Glenmark Pharma leading the losses. However, Aurobindo Pharma is trading firm. As per a leading daily, India's second largest drug manufacturer in terms of sales, Cipla Ltd, has floated a new in-house venture capital firm called Cipla Ventures. This firm will consider investing in companies from start-up hubs such as London and Boston among other places. It will focus on ventures pertaining to areas such as biotechnology, medical devices and new chemical entity. The main objective behind floating this venture is to develop companies that will complement Cipla in the future.

Telecom stocks have opened the day on a positive note with Reliance Communications, Idea Cellular and Bharti Airtel witnessing buying interest. The telecom players finally have some cause to cheer. As per the data released by Cellular Operators Association of India (COAI), the subscriber base for the GSM operators has increased by 0.5% in the month of May 2013. The total GSM subscriber base has increased to 667.6 m in the month. However, telecom incumbent Bharti Airtel had no reason to celebrate as it lost subscribers to other competitors. In terms of net subscriber additions, Bharti lost subscribers again to its rivals Vodafone and Idea Cellular. This makes it the second consecutive month that the incumbent has lost subscriber share to its peers. But despite the loss, the company still enjoys the largest market share in terms of subscribers. Though the subscriber base has grown, the pace of addition has slowed down as the net adds during the month were below the net adds seen in the month of April 2013. As per COAI, this was due to the slower network expansion in some circles triggered by the non availability of some network equipment.