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India shares seen trapped below 3600-point barrier

BOMBAY: Indian stock markets are still reeling from the scrapping of Enron Corp's US$2.8 billion power project and the Bombay bourse's rejection of a new system of trade aimed at boosting liquidity, analysts said.

As a result, share prices are unlikely to gain sharply in the near term, they said at the weekend.

The bad news hit bourses in quick succession and the Bombay Stock Exchange (BSE) index has fallen about 140 points, or four percent, from end-July to close at 3,405.20 on Friday.

Analysts say the index will remain trapped below the 3,600 point level for the next three months.

"The index is unlikely to move much from its current trading range in the next three to four months and should trade between 3,300 and 3,600 points," said Aditya Samant, an economist at UBS Securities in Hong Kong who studies the subcontinent.

"Foreign investors will take some time to get over the Enron scare and nothing seems to have worked out between the BSE and SEBI either," Samant said.

Market regulator the Securities and Exchange Board of India (SEBI) last month approved a new system of trade that could boost stock markets by allowing greater speculation in shares but the country's leading bourse rejected the proposal.

BSE president Kamal Kabra said SEBI's strict controls made the new system "unworkable".

A week later, the rightwing government in India's most industrialised state of Maharashtra added to the gloom across bourses by stating it had scrapped the country's largest foreign investment project, a power plant being built by U.S.-based Enron Corp.

"There has been some uncertainty courtesy Enron. India is yet far from being a write off but, for the moment, 3,600 points is a resistance. I don't see the index crossing this level for the next two months," said a trader at a leading broking firm.

Bharat Iyer, senior analyst at Smith New Court India brokerage said the index may not even make it past 3,500 points in the next three months.

"After Enron, it's difficult to see money coming in a major way. Foreign investors are more or less reconciled that elections will occur next year but the uncertainty post-Enron rankles," Iyer said.

More than 300 registered foreign institutional investors have pumped $3.48 billion into Indian bourses in the last two years. Analysts say foreign investors are unlikely to step up their investments until after the next parliamentary elections.

India is due to go to the polls by mid-1996.

Analysts say the ruling Congress party, which began the country's conversion to a free market economy in 1991, is unlikely to win a clear majority in general elections next year.

"Politics will be the primary driving force in keeping the market flat," said Anish Trivedi, director research at Oppenheimer India Ltd.

"We see some increases in the index but there could be some profit-taking also. The market will move up 200 points and fall 150," Trivedi said.

"Economic growth and company valuations are attractive but the lack of clear policy direction is preventing the index from rising to 3,800/4,000 levels," UBS Securities' Samant said.-Reuter