Indian markets have been falling since we had a fiery and festive Diwali week. It was surprising that all the festivities happened before and after Diwali, but it has been three weeks of fall thereafter. The fall in the week just ended has been quite severe and the markets have taken a big beating. The list of stocks which are at their 52 week low seems to be getting bigger by the minute. Stocks like SBI, ICICI, Tata Steel, PSU stocks like IOC, BPCL, HPCL, SAIL, National Aluminium, BHEL, SAIL, Larsen & Toubro andJSW Steel are all at 52 week lows. The benchmark indices like the SENSEX and NIFTY have lost 20% in the current year as of date and are most likely to lose more in the remaining period of the year. The question on everyone’s mind is why this fall and when would it stop? Also is it a good time to start buying?
Let us look at some of the reasons for the fall. The easier part is to blame it on the global scenario. Europe and the US seem to be going nowhere. One used to hear an acronym like “PIIGS” (Portugal, Ireland, Italy, Greece and Spain) and now a new one has emerged in “FIGS” (France, Italy, Greece and Spain). It is this second one which is really dangerous and anything happening here could rock global economies. Last week one also heard of a comment being talked about Italy that it was too big to bail and too big to fail. The biggest concern in Europe is who would fund the deficit of the countries and what happens once Italy is bailed out when Spain and other countries suffer the same fate. Secondly the existence of the EURO as a currency is at stake. Bond yield rates in Italy have already touched the 7% mark and refuse to come down. It’s a tall order and there would probably be some clarity at the end of the week after some crucial meetings scheduled midweek.
The global crisis was not enough and we have enough problems in India as well. Some of these are a general slowdown which is being witnessed in the economy. The GDP number keeps being changed around as it suits people and the figure being talked about now is clearly sub 7%. Auto sector which has been doing extremely well has taken a severe beating in October and sales have slumped. The Indian Rupee which was holding quite well has fallen very sharply from around the Rs 44.50 level to almost Rs 51.50 level a depreciation of over 15% in just over 2 months. This depreciation has hit the oil import bill very sharply.
The fiscal deficit is all set to rise very sharply on two counts. The estimated revenue is likely to fall because of direct tax collections which would decrease with corporate India’s profits slowing down quite substantially in the September quarter and also on the indirect tax front where there is a slowdown on sales visible and anticipated growth is unlikely to happen. On the expenditure front there is an increased expenditure on account of the rising crude oil prices and the sudden depreciation of the rupee which would increase the budgetary gap by about 1.5-2 lac crs. There is a third front as well where the estimated collection from divestment proceeds was supposed to fetch the Government about Rs 40,000 crs. So far with almost eight months of the current year over the collection is yet to cross the Rs 1200 crs. All this is leading to instability in the money markets where out of the last five auctions by the Government, four have devolved.
Is there a way out of these problems is the moot point. Parliament begins its winter session from the 22nd of November and there are quite a few bills which are likely to be introduced in this session. It would be interesting to see the intent of the government to push reforms, contain the fiscal deficit, tame inflation and still steer the country from the slowdown and the global crisis looming large.
Our markets are close to its lows of the year and we are within striking distance of the same. Results for the quarter have not been too good and there is a definite slowdown visible. We are seeing FII’s quite neutral to negative on their view on the country. The banking sector has seen a sharp increase in NPA’s on account of the introduction of system driven NPA’s and also the relentless rate hikes that have been happening at regular intervals. All this does not augur well for our secondary markets and amidst falling volumes our markets are slowly but steadily slipping and slipping towards new lows for the year.
The primary market had the huge rise in offerings in the week of September where nine issues opened. The fate of most of these issues was a foregone conclusion and they are where they were expected to trade post their listing. The current scenario for new issues is fraught with danger and one needs a brave heart to enter the markets with an issue at this time. There are likely to be bond issues happening in the week ahead and many of those who came last year with such issues under the tax benefit of Rs 20,000 last year would be opening again this year as well. There was a new provision under the budget where the FM had said that Rs 30,000 would be raised for infrastructure as tax free bonds as well. I believe there would be an offering of the same likely by the end of the month. As far as equity issues are concerned there are many in the pipeline that are waiting and waiting for the right time. Will the same come!
What should an investor do in the secondary market at this time is the last question that needs to be addressed. I believe the time to buy has not come and there is more pain yet to be borne by the markets. One needs to be patient and play the waiting game. Patience will certainly be rewarded. There is uncertainty ahead of us on many factors and it makes sense not to be brave, foolish or simply jump the gun. Technically people are talking of various levels but the immediate level of significance on the benchmark indices which is likely to be broken is the low of 15,750 on the SENSEX and 4,720 on the NIFTY. These levels are almost like staring u in the face and may happen faster than one can imagine.
In conclusion, let’s wait for the time being with simply too much happening in the next few days. It makes sense to sit out and avoid getting hurt.
