It looks as though Indian stock markets lost their up-up-and-away feeling on Bloody Tuesday. A remarkable recovery occurred followed by some bouncing up and down. But each big fall takes the market lower than the last one. By last Thursday before the long weekend the BSE sensitive index was down 15 per cent from its all-time high of 6150 in mid-February. Steep but not as much of a downfall as the one that occurred over a shorter period in the technology-heavy Nasdaq whose movements the BSE tends to mimic.
The Nasdaq was down 25 per cent from its March 10 high on Wednesday. Several factors influence sentiment in the Indian stock market, of course, but by common consent it is the Nasdaq that is the most powerful. So, what is happening in New York that is taking the shine off technology stocks? Is the technology bubble about to burst with a slow exhaling of air over a stretched-out period? It is no surprise that there are as many contradictory views on Wall Street as there are on Dalal Street. According to some, the old rules are coming back into force (or fashion): share prices are beginning to be affected by profits and earnings again. Thus far, going by traditional criteria, chiefly expectations of company profits, infotech shares barring the big names have been wildly overvalued over there and over here. But that is not how either Wall Street or Dalal Street used to look at it.
In a sense, the enthusiasm for technology stocks and the long bull run was based on perfectly rational calculations. Everyone was buying them so everyone bought them. There was an additional factor in the momentum in India. At the time Wall Street's exuberance washed over these shores, traditional stocks were still an uncertain bet and a host of cash-rich tax-free mutual funds had nowhere to go but into technology shares. Rational expectation went to work again. Everyone was buying, so everyone bought.
Everyone also knew, and the gurus are saying so more loudly now, that the boom would have an end. The only question was when the selling would begin and turn into a panic. Volatility in markets all round the world over the last few weeks is an expression of the nervousness investors feel as they wait to read sell signals.
But that is not the whole story. The infotech revolution is here to stay and transform the economy and the way business is done. So the sector will bounce back. On the Nasdaq some analysts expect for a while that every upward move will be met with some selling as investors try to make up for losses suffered elsewhere. But if, as expected, profits in many companies are strong, confidence will be restored. More discriminating investment will probably occur and a balance be restored between ``old'' and ``new'' economy stocks. If so, it would be a healthy trend. But no one will be betting on a stable market there or here. Volatility is written into a sector where change is rapid, where companies rise, merge, are bought out, stumble or are overtaken by newer technologies or adopt new strategies and where business opportunities change virtually by the hour.
The Nasdaq was down 25 per cent from its March 10 high on Wednesday. Several factors influence sentiment in the Indian stock market, of course, but by common consent it is the Nasdaq that is the most powerful. So, what is happening in New York that is taking the shine off technology stocks? Is the technology bubble about to burst with a slow exhaling of air over a stretched-out period? It is no surprise that there are as many contradictory views on Wall Street as there are on Dalal Street. According to some, the old rules are coming back into force (or fashion): share prices are beginning to be affected by profits and earnings again. Thus far, going by traditional criteria, chiefly expectations of company profits, infotech shares barring the big names have been wildly overvalued over there and over here. But that is not how either Wall Street or Dalal Street used to look at it.
In a sense, the enthusiasm for technology stocks and the long bull run was based on perfectly rational calculations. Everyone was buying them so everyone bought them. There was an additional factor in the momentum in India. At the time Wall Street's exuberance washed over these shores, traditional stocks were still an uncertain bet and a host of cash-rich tax-free mutual funds had nowhere to go but into technology shares. Rational expectation went to work again. Everyone was buying, so everyone bought.
Everyone also knew, and the gurus are saying so more loudly now, that the boom would have an end. The only question was when the selling would begin and turn into a panic. Volatility in markets all round the world over the last few weeks is an expression of the nervousness investors feel as they wait to read sell signals.
But that is not the whole story. The infotech revolution is here to stay and transform the economy and the way business is done. So the sector will bounce back. On the Nasdaq some analysts expect for a while that every upward move will be met with some selling as investors try to make up for losses suffered elsewhere. But if, as expected, profits in many companies are strong, confidence will be restored. More discriminating investment will probably occur and a balance be restored between ``old'' and ``new'' economy stocks. If so, it would be a healthy trend. But no one will be betting on a stable market there or here. Volatility is written into a sector where change is rapid, where companies rise, merge, are bought out, stumble or are overtaken by newer technologies or adopt new strategies and where business opportunities change virtually by the hour.
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