The BSE SME index on Tuesday retreated to 756.20 points a drop of 14.45 points from Monday’s close of 770.65 in tandem with the prevailing sentiments in the equity markets.
Equity markets have been overwhelmed by uncertainty as evident from the nearly 220 basis points drop in the BSE sensitive index. The clear sentiment driving the selling were Foreign Institutional Investor sellout. Global cues continued to be the dominant element influencing investor sentiment. Among the global cues, besides risk aversion over the deteriorating environment in the middle east also was the potential of a hike, even marginal in the U S interest rates.
A hike in U S interest rates, would in turn imply that the dollar’s status as a carry currency in capital markets would become impeded. This was because borrowing in dollars and deploying in capital markets would become expensive to borrow in dollars. As a result among the first markets to be struck by risk aversion were the low liquidity, emerging markets, India included.
But market men said that the sellout was influenced by low international oil prices. Among the investors in India’s markets, especially in the low liquidity, but high return SME markets included Arab funds, particularly those originating from the UAE, Qatar and Saudi Arabia. All these economies have been adversely hit by low oil prices, forcing them to dive to reserves for sustaining budgetary and military expenditure. The result has been that the Arab funds have remained as large sellers from Indian capital markets.
Consequently trade volumes in the SME markets remained thin and restricted. Out of the 107 listed companies in the SME platform, barely 30 companies were traded today. Market turnover was barely Rs 2.1 crore. The key traded stock remained realty company SRDL, where the turnover was nearly Rs 1.22 crore. But SRDL’s prices fell sharply as selling overwhelmed the stock. IT stock VCU fell Rs 3.10 on a thin turnover of just Rs 1.58 lakh. Mangalam Seeds Limited had a turnover of Rs 4.5 lakh, but prices dropped Rs 4.45 to Rs 74.35 in today’s trading.
Overall, bearish trends are expected to prevail in the market, through the year. The bearish mood is partly on account of the fact that for the main customers of the SME companies were under pressure. Besides export oriented SMEs were faced with market compression and price depression in their main markets. In addition some were also faced with payment delays from cross border customers leading to severe liquidity problems and in turn translating to high cost of working funds.
Image Courtesy : economictimes.indiatimes
