The impact of US sub prime crisis on Indian stock market?

Answer 1

The impact of the US Subprime economic crisis has been significant and has been on the negative side. Foreign Institutional Investors or FII's in short had been heavy buyers in the Indian stock markets in the past few years. They too believed in the Great Indian Growth Story. They invested in millions of dollars and bought out stocks of India's famous companies. Once the subprime crisis started looming large on the US financial players and other companies they were stuck with bad debt. They were running short of cash which they needed badly to keep themselves alive. Companies like Lehmann which were unable to raise enough capital had to declare bankruptcy. When we need cash we usually sell out our assets in order to save ourselves. The US based companies that had invested in the Indian stock markets did exactly the same. They started selling off all their share holdings to make money out of it. As you may already know, the stock markets work using a simple principle. More people buy -> The index goes up and the share prices go up. More people sell -> The index goes down and the share prices go down. Since almost all FII's opted to sell out their holdings simultaneously the prices of shares of companies that were once considered invincible came down like a rocket that ran out of gas. Almost all companies were being sold out in a frenzy. Seeing the FII's sell in thousands the Indian investors also joined the party and started selling their holdings. Net Result: A Magnificent Disaster which has eroded the portfolio's of everyone who invested in the Indian Stock Markets... The BSE Index or Sensex was somewhere around 21000 during the beginning of this year i.e., Jan 2008. Now it is hovering around the 8000 - 10000 mark. i.e., a correction of nearly 60% The prices of shares also have corrected heavily.