Indian mkts rattled by Dubai default impact

The morning has been a nervous one for global equity markets, says CNBC-TV18’s Managing Editor Udayan Mukherjee. “After a long time a bit of edginess is creping in and that’s because we got a jolt from Dubai.” There are talks of a default from a very largeDubai organization and that rattled global sentiment quite considerably yesterday. The USmarket was shut overnight and a lot of Asian Markets are shut too this morning. But the ones which are open are betraying the same nervousness that we saw yesterday.

In any case the Nifty trembled a bit going into the expiry and this morning looks like it may just react a bit to global markets as well for starters. So a touch of red should be expected once again for India as we open up today fresh for the December series.

Q: The scary part about Asia is that these cuts are coming after 2-3% cuts yesterday itself. It came from the one market we weren’t watching – we were watching the US and China and it came from Dubai?

A: This is one small bubble, which has been in the making for a long time and people who track Dubai closely in India from the real estate side have been warning for a long time that slowly that story was unraveling. Should now one panic because of Dubai? There is collateral damage and we can talk extensively about that later but there is collateral damage in India and particularly the one, which is probably potentially damaging, is the European bank’s exposure to Dubai. That is what one needs to worry about most because if that opens up there are possibilities of fresh write-downs for the big European banks. Then that might lead to more nervousness in global markets.

But is the collapse of some institutions in Dubai or even if Dubai goes into a default or a junk kind of a status – the trigger for a massive sell-off in global markets? I doubt it because it’s not that big. Yes, USD 40-50 billion is a big sum of money but at this point to say that USD 50 billion is equal to zero is premature. Sure there will be difficulties there will be restructuring etc and there will be some hits but this is no Lehman Brother’s crisis.

So we need to just stay a bit calm out there. Yes, Dubai is bad news and yes it cannot be whished away by saying, “It doesn’t matter at all.” But could it bring global markets to the knees like Lehman Brothers last year? I think it is very far from it.

Q: What about the market – yesterday was not a good session for us and it worked in both parts – global and expiry?

A: Yes it was coming and we were talking about some of the signs and there were signs of nervousness and some strains in the market in any case. Maybe Dubai was the trigger; maybe the markets saw it coming. Yes it was not a very pleasant close for the series, which has been pretty good. Today we start off in the red once again. We will probably drift down a bit now.

The key question is whether after a slip this morning, which looks very likely, people will come out and say, “Okay, we are getting the Nifty a couple of hundred points lower than what it was just day before and therefore it presents another buying opportunity.” So the test is what happens after the fall today and if the fall gets bought or people think this cut is not going to end here as it heads further down. The second half of today is an important test for the market because it’s fresh in the series – it is the new series, which is opening up. more