Saturday 16 / November / 2024
MUSCAT: A slowdown in economic activity in several sectors is expected with investors on the local bourse losing hundreds of millions of rials and the stock market plummeting to a seven-year low.
The investor community in general will spend less since there is a substantial (notional) loss in their portfolio investments or financial assets.
“These are the times when people generally avoid luxury consumption due to the fact that they are not able to generate income from short-term equity market investments,” said Kanaga Sundar, head of Research at Gulf Baader Capital Markets.
Liquidity crunch
Although the actual loss will be felt when an investor sells his shares, the investor community in general faces a liquidity crunch, since they are unable to divest their equity shares.
Local and foreign investors on the Muscat Securities Market (notionally) lost OMR720 million in share value, when the market plunged by 539.22 points or almost 10 per cent since the beginning of the year (14 trading sessions) to close at 4,867 points on Thursday. The overall impact of the plunge in market will be seen in slowdown of overall economic activities,” said Hassan A, an Indian investor, who has been investing on the Muscat bourse for more than a decade.
The disposable income (net income available for spending) of local investors from stock market gains has already eroded, which will percolate down resulting in an overall slowdown in the economy.
“When an investor gains from the market during a bull run, they realise the gain and go for luxury items, such as cars. With the market at record lows, I will not spend on luxury items,” added Hassan. However, a section of investors reinvested in the market when they gained from their portfolio investment, which is also not happening now. This had led to a fall in market liquidity.
Sundar said that as far as corporate entities (such as insurance and investment holding firms) are concerned, they will try to optimise their expenses to survive in this difficult economic environment.
Referring to the general trend in the local bourse, Sundar said people are trying to get out of the market since investments in equity markets are liquid assets. “These are liquid assets, which can be realised quickly. The equity market always acts as a lead indicator of economic performance. Other asset classes, such as real estate could be difficult to liquidate to generate liquidity.”
Right time to sell
A majority of local investors are holding their stocks on the expectation that the market will recover during the second half of the year, when crude oil prices recover in global markets.
“I will hold the stocks until the market recovers,” said Hassan A. Hassan, who owns stocks of 10 companies, which will fetch him little higher than OMR10,000 at the present market price.
“However, my portfolio was worth around OMR80,000 when the market was its peak sometime in 2008,” he said, adding; “I have gained on several occasions when I sold stocks, which were bought during initial public offerings.” Hassan purchased shares from both primary issues and the secondary market. “I don’t know what is going to happen in the coming years.”
Suresh Kumar, head of research at Al Maha Financial Services, said an investor’s decision to sell an investment portfolio currently depends on their market experience and the nature of investment.
“Some investors must have seen similar market cycles at least two times earlier. They are serious long-term investors,” said the market analyst.
“Long-term investors will capitalise on this opportunity since they get cheaper assets,” noted Sundar.
However, first time investors, who are not experienced (and look for quick returns), will get out of the market.
Echoing a similar view, K Mustafa, another investor, said he would also hold the shares. “I am not going to sell my shares immediately. I had incurred heavy losses during the last market crash, after the global financial crisis,” noted Mustafa, who has investments in four companies —Galfar Engineering, Al Anwar Holding, Ooredoo Oman and Oman Cables.
“I had incurred heavy losses way back in 2009, after the major market crash. I have sold all my investment portfolios thereafter and never re-entered the market due to my bad experience,” said V T Saileshwaran, managing director of Apollo Hospital.
