After a phenomenal 2007 during which new highs were tested on a regular basis, the current year has brought the Indian Stock Market crashing down to earth. Jittery investors have had one worry or another to make them exit the stock market in droves this year. The new year started with heightened worries over the credit crunch in the US and Europe. Foreign Institutional Investors (FII’s) started selling and exiting in droves after record inflows in the previous year. The effect has been to bring the Sensex down from the 21,000 to 15,189 as of the 13th Friday 2008 (the Nifty is now at 4,500 down from 6,350). The Rupee after strengthening strongly in 2007 has weakened in 2008 - due to the FII’s exiting Indian Markets and rocketing oil prices which has led to the USD being heavily bought.
So where to from here? My personal feeling is that there is not much good news which will help the markets in the near term. If anything there is more probability that there will be more bad news emanating as the credit crunch refuses to go away and there is little doubt any big news on this front will be felt all the way in India. So overall I think there does remain some probability that we will see the markets even lower by the end of August. I would not be entirely surprised to see the Sensex at between 12K and 13K and the Nifty at around 4K. However this all in the balance of probabilities.
The reasons for my bearishness are as follows:
1). Inflation - There seems to be a real problem with inflation rising globally and more so in emerging markets like India. As the prices of everything from Oil to food continues to hit new records there will clearly be a negative impact on RPI figures. Consumption is bound to drop off as people tighten their belts and the growth story starts to look not as rosy as it did in 2007. There seems to be very little room to use monetary policy to boost consumer confidence as well. The property sector is already starting to feel the pain and I see the large property companies getting hammered every day in the stock market. The question now is how long before this translates onto the real economy and house prices start falling? Consequently this also makes mortgage banks like HDFC probably less attractive at the moment.
2). Oil at $200 - well there has been a lot of talk about this and judging by the last couple of weeks this could be a real possibility towards the end of the current year. My own feeling still is that this will start to tail off by the end of the summer and we will see Oil nearer the $100 level. My feeling is that there will a lot of pressure on OPEC to increase production and there is also considrable amount of inventory lying around in tankers as refineries are cutting back on buying at the moment. Of course any unanticipated supply shocks owing to political events or natural disasters in the Oil producing areas of the world will send prices skyrocketing.
3).Weak Government - The BJP victory in Karnataka was clearly far more sweeping than anyone had expected or predicted. The current government faces a national election at the latest by May 2009 and as such is not likely to make any bold moves to tackle inflation with the BJP breathing down its neck nationally. I think we will see more inaction and prevarication as witnessed over the oil price rise. The markets will not like this sort of uncertainty and to be honest the econonomy will not benefit from this sort of weak leadership. Chidambaram clearly has a tough few months ahead of him and I think his credibility and credentials will be severely tested.
So overall there are a lot of factors which would clearly indicate than any investors should proceed with caution. Things will be clearer by the end of the summer I feel and there will be some great bargains to be had once the dust settles and the lie of the land is clearer. I will be doing a seperate post on my picks in the Indian stock market and my reasons for it in the near future.
20 responses so far ↓
1 Stardust // Jun 18, 2008 at 6:01 pm
Nice stuff , Spin doc. So do tell me…where in India should I be investing in property ?
2 granderBharata // Jun 18, 2008 at 9:43 pm
stardust i aint an expert but try investing in the up and coming cities like pune hyderabad etc.
very good article. waiting for ya pic spin.
I think if the BJP can hold onto MP and Rajastan then Congress is finished. however if the congress wins those states you might have a different scenario.
3 Shoaib // Jun 19, 2008 at 8:32 am
Spin,
Thanks for that very informative piece!
How much do the events in the Political front influence the broader aspects of the Indian economy???
I remember the 90’s when the ecnomic liberalisation was in full swing in India, the immense Political uncertainity that was prevalent in the Country at the time had little effect on the Indian economy.
4 admin // Jun 19, 2008 at 4:35 pm
Shoaib - You ask quite a difficult question. From one point of view you look at the recent growth of the Indian economy and a lot of it is in spite of the government - a good example is the government of Karnataka has been ignoring pleas from the business leaders of Bangalore to provide them better infrastructure.
At the same time we cannot understate the reforms of the early 90’s and the effects they have had. However I do feel that the government can help the economy a lot more than it does and make the growth even more turbo charged.
Finally inflation is a very dangerous thing in a country like India given that people on low wages are very sensitive to even the smallest changes in the price of goods. So any measures in an election year to win votes could really hurt the economy in the longer term.
5 I Slam // Jun 25, 2008 at 5:23 am
The realty prices,per se,have no corelation to the realty STOCKS. The prominent realty stocks like Dlf, unitech etc are quoting at 40 % of their all-time-highs ,where as,the property prices in tier 2 cities,are still quoting at around 90 % of peak traded prices.The most likely scenario is,that prices should soften more.Btw, at cmp,most psu-banks are quoting at 60 % of book and the bluechip infra plays like LT,Bhel etc are now at 50 % of their peaks reached in 1st fortnight of January 08….. and still,no1 is buying- is this indicative of the diminishing growth? My personal prediction on GDP for 08/09 is 7 %.
6 I Slam // Jun 25, 2008 at 5:26 am
Sensex and nifty open at 13770 and 4098 - 25th June 08.
7 I Slam // Jun 25, 2008 at 5:41 am
My buys,in equity and delivery trades only,staggered since last 30 days, have reoded by over 18 % and no realty stocks were bought. ….
Realty index-is down by 10 % from its August 07 lows- its looking THAT bad.
Punters with deep pockets and a death wish ,do buy into RIL , LT ,SBI, ACC, BHEL, GAIL and Allahabad Bank. These 7 samurai’s , should either give you a very good return by december 2010 or…..
………….. u could be dead.
8 admin // Jun 25, 2008 at 9:14 am
I Slam - In my opinion the realty stocks are a precusrsor to what will happen in the actual realty market in cities around India. I think there will be a 6 to 9 month lag, but we will start to see the effects in about 3 months time.
I think all your stocks are good tips - esp. RIL, LT, GAIL, BHEL - I dont know much about Allahabad bank. SBI I am a bit wary off but it is looking cheap. I am going to wait for a while longer before buying to get it cheaper.
9 admin // Jun 25, 2008 at 9:29 am
I slam The other stock I really like is Nagarjuna Construction - now at 147 - which is about 20 time current year earnings. Your take?
10 I Slam // Jun 25, 2008 at 12:57 pm
Nag has been in a few murky deals[ govt tenders] of late…. let me enquire and revert
shipping- ge and mll -which offers value ?
realty-generally,property prices,went up by 4 to 8 times across board between 2004 and jan 08.This is too fast too soon and i also feel a major downside is in offering.The question is,say 3/6 months from now,does one buy realty[as a investment] or realty stocks ?
11 I Slam // Jun 25, 2008 at 2:20 pm
RP[etro]L -from lows of 159,closed at 170 … some big boys have picked up a few million units today.. ..
six month target -250
12 Is it time to buy into Indian Stocks yet? // Jun 25, 2008 at 6:35 pm
[...] is not an easy question to answer as there are still many question marks over the Indian market (see my last blog.) and with the last set of Inflation figures coming in at 11.5%, the economic uncertainties are [...]
13 sharetipsinfo // Jul 10, 2008 at 8:39 am
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We require 2-3 days positive closing else nifty can crash. Political issues are also hampering market along with inflation and crude oil price. Major support for Nifty is 3650 and Resistance is 4300. Nifty will remain range bound overall trend will be bit bearish in coming days.
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14 KnowYourProfit // Jul 12, 2008 at 10:55 am
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Today i.e 11th July’08 now as theInflation data (11.89%) has come and consequently we had seen from the last few weeks it is going on increasing week by week so the strategy now to adopt is to avoid long positions and do Intraday Trading that too with the strict stoploss as this data also plays an important part in giving the direction the market as Indian Stock Market depends on various factors one of which is Rate of Inflation.
Also
Important Support Levels for NIFTY are 4130-4080. Consolidation on thses levels will show some bounce in the Market.
Investors had an opportunity during these situations where Investing in undervalued stocks would be beneficial.
Best Buy Sectors
1.Infra
2.Health Care
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15 KnowYourProfit // Sep 12, 2008 at 10:19 am
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Now as such the final stages of the formal completion of nuclear deal has come,so we can expect some positive news effecting the
movement of the INDIAN STOCK MARKET which means stocks coming in power sector will take new direction
Companies which will benefited includes mainly
1.Larsen n Tourbo(LT)
2.Hindustan Construction Co. Ltd(HCC)
and the list had few more names..
Happy Trading
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16 Apply food stamp // Sep 24, 2008 at 1:21 am
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17 sumatiptan // Oct 17, 2008 at 4:48 pm
what is imitrex
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19 KnowYourProfit // Oct 31, 2008 at 12:27 pm
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Now as such we have seen in past few trading sessions that Market has become volatile and also there were also most of the stocks are available in discounts which means that the right time has come whne one can invest in this Indian Stock Market with handsome gain in over a period of time along with that one can also opt for doing Intrading Trading now days as stock specific movement is there.
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20 sharetipsinfo // Nov 12, 2008 at 10:49 am
Hi,
Discipline is the key now if you are a trader or investor in the stock market. As all global markets including Indian stock market have become highly volatile because of which many investors and traders are burning there fingers. Still we suggest there are lot many opportunities which can let you earn a lot from stock market.
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