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Recession clouds darken over US

business Updated: Feb 01, 2008 03:16 IST
MC Vaijayanthi & Vyas Mohan
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Ben’s balm has failed to keep the aches and pains of the US from hurting India.

On Thursday, US Federal Reserve Chairman Ben Bernanke reduced the rates at which the regulator lends money to banks by 0.5 per cent. This was the second time in 10 days that he effected a huge cut — on January 22, it was 0.75 per cent — in a desperate bid to cushion the impact of a slowdown. The US economy recorded a minuscule 0.6 per cent growth in the fourth quarter of 2007, from 5 per cent the previous quarter, and economists are forecasting a further contraction.

<b1>No wonder then that Indian stock markets were not impressed. Though the rate cut would mean more cash for Indian shares, the Sensex lost 109.93 points to close at 17,648.71. The impact has been felt most by companies preparing to list on the stock exchanges.

Two major offerings, Wockhardt Hospitals and Emaar MGF, reduced their offer prices. Wockhardt, in fact, could not accept bids at all on the opening day of the issue as it awaited regulatory approval to reduce its price band to Rs 225-260 from the original Rs 280-310 per share.

Realty giant Emaar MGF, whose issue was to open on Friday, revised its price band to Rs 543-630 per share from Rs 610-690. “This was due to market conditions,” said Dr S Subramanian, head of investment banking at Enam Securities. Added the head of a retail brokerage, “Even now, these offerings are costly.”

Investors across the globe have overlooked Bernanke’s massive rate cuts as worries of snail-paced growth in the world’s largest economy and the aftermath of the massive defaults on loans to individuals with poor credit histories dwarfed development. “The rate cut was expected, but it doesn’t guarantee the safety of the US economy. There could be more bad news. Though India may be relatively less-affected, it cannot be insulated for long,” said Amar Ambani, vice-president (research) at India Infoline.