With major financial crisis erupting in the U.S., Indian stock market benchmark index (Sensex) fell by 469.54 points or 3.35 per cent on Monday to close at 13531.27. Realty stocks led the fall with a loss of 7.65 per cent.
The National Stock Exchange, the NSE Nifty lost 155.55 points or 3.68 per cent. All sectoral indices closed in the negative territory.
An eventful week of turmoil has begun in the global financial scenario as stock prices plunged across much of the globe on news that investment bankers, Lehman Brothers Holdings filed for bankruptcy and Merrill Lynch & Co’s forced sale to Bank of America. To add to the worsening situation, American International Group (AIG), the world’s largest insurance company, asked the U.S. Federal Reserve for an emergency funding before announcing a major restructuring plan.
Lehman Brothers Holding, with $60 billion in bad debts, is the fourth-largest investment bank. Merrill Lynch is the third biggest investment firm, which also stuck with toxic sub-prime (real estate) with $40 billion write-downs, now sold for $29 a share, less than half its 52-week high but around $12 higher than its closing price last Friday.
The investments in Indian firms by these U.S. investment bankers are a major worry for Indian investors. The 14-month-old credit crises that stem from sub-prime (real estate) mortgage debt is now left with two other big firms on the Wall Street, Goldman Sachs Group and Morgan Stanley and they are expected to announce their quarterly results on Tuesday and Wednesday, respectively.
Investor confidence is at its lowest ebb. Only few days ago, the U.S. Government bailed out two leading mortgage lenders — Fannie Mae and Freddie Mac. The Federal Reserve is expected to make a decision on interest rates on Tuesday.
Investors are worried that all these are likely to trigger another round of troubles for banks and financial institutions around the globe. Six months ago, in March, Bear Stearns, the fifth biggest U.S. investment bank, witnessed a full circle before its fall and sell-off to JP Morgan Chase & Co for a rock bottom price of $2 per share.
Crude oil price was a major issue in recent times. In the New York Mercantile Exchange, light, sweet crude oil dropped by $4.43 to $96.75 a barrel in pre-market electronic trading. Oil hit a record high of over $147 a barrel in mid-July this year. However, gold prices are on the rise. Post-Lehman, when the U.S. stock markets opened on Monday Dow Jones Industrial Average (DJIA) was down by around 300 points.
While writing this report, DJIA is down by 256.07 points at 11165.92, Nasdaq by 30.61 points at 2230.66 and S&P 500 by 27.22 points at 1223.98.
Crude was at $94.97 a barrel down by 4.64 per cent and gold was trading at 773.7 an ounce, up by 2.33 per cent.
In afternoon trading, Britain’s FTSE 100 fell by 3.64 per cent and Germany’s DAX index by 3.33 per cent.