It’s not a bloodbath yet, but the signs on Dalal Street don’t make for happy reading. In just a month, the gains made by Indian stockmarkets have been grievously eroded, and with blue chips getting hit especially hard. While analysts seem confident about robust corporate earnings, India has not gone unaffected by the new global credit contagion. The Eurozone crisis was again at centrestage, taking down markets globally. The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers in 2008. Swaps on Greece, Portugal, Spain and Italy rose to nearly all-time high levels. The bond and money markets turmoil spilt over into stockmarkets. Overnight deposits at the European Central Bank rose to a ten-month high, as the sovereign debt crisis made commercial banks reluctant to lend to each other. All this routed world equity markets. It overshadowed the improving consumer- confidence and other macro-economic data from the US economy, which signalled rising optimism about a recovery in the US. Markets all over the world were rattled further by German regulators banning shortselling on shares of 10 financial institutions and Eurozone government bonds. As Open went to press, the benchmark BSE Sensex had lost more than 700 points over the week. The NSE 50 index broke its 200 Simple Day Moving Average and closed below it for the first time in the entire bull run that began in April 2009.
Most analysts foresee poor sentiment further dragging the BSE Sensex down to the 15,000 level or thereabouts. But the fundamentals of the Indian economy look fairly good, and with good monsoons, there may be little reason to fear gory signs of the European bloodbath washing up on Indian shores.