Indian markets

Monday Mayhem and thereafter….do not press the panic button.

We need not panic & should firmly stay invested in this sell off over the last two weeks. Fundamentally nothing has changed in India & the domestic story remains intact. Low commodity prices, low inflation, improving GDP growth augers well for India. This selloff is purely due to global concerns especially China & huge FII selling, partly due to a sudden depreciation of the rupee.
Till 21st August 2015, India was the among the best performing emerging markets in 2015 so far, having fallen only 4% compared to most other markets which had fallen between 15% &70%. But that also means that global investors would have been tempted to cash out of some of their positions in India to reduce losses suffered elsewhere.
The selloff in Chinese markets weighed on risk assets across the globe. Copper, seen as a barometer of global demand, tumbled to a 6-1/2-year lows as the anxiety over China snapped investor confidence. Global stock markets are tumbling after a survey showed Chinese factory activity contracting at their fastest pace since the depth of the global financial crisis in 2009. Fears of a China-led global economic slowdown drove Wall Street, previously seen as a safe-haven, to its steepest one-day drop in nearly four years on Friday.
The devaluation of the Yuan has impacted most emerging market currencies and stoked fears about a currency war. South Africa’s Rand struggled at 14-year lows, the Turkish Lira languished near a record low, while the Malaysian Ringgit hit a 17-year low. Countries like Kazikisthan, Russia which are highly dependent on oil exports amongst others are devaluing their currencies to remain competitive in the global markets.
Rupee slumped to as low as 66.72 per dollar, down over 4% in the last month. It is lowest since September 2013.Given the sharp fall in crude & commodity prices, globally a weaker rupee may not just impact India yet, one reason why the RBI has not intervened. But beyond a level we expect the RBI to take some policy action soon. Given the kind of Forex reserves India has & legroom for a rate cut, intervention should not be a problem.
“Many of you who were watching the markets this morning were worried about the continued volatility from last week. While we don’t want to opine on the future direction of markets, we believe that relative to other countries, India is in a good position with strengthening growth, a low current account deficit and narrowing fiscal deficit, moderating inflation, low short term foreign currency liabilities and a sizable exchange reserves relative to imports and liabilities,” Dr Rajan said post the market crash on 24th August 2015.
Finance Minister Arun Jaitley too tried to assuage investors, saying India was reacting to global developments, and that the macro parameters like inflation, fiscal deficit and tax collection were pointing to a revival in the economy.
Thus, this is a good time to invest in quality stocks which always looked expensive and has fallen in this crash without any fundamental reason & all stocks driven by domestic growth/consumption which has nothing to do with any China slowdown. Thus the India Story remains intact.

Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ 

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.