They are grappling with one unpleasant surprise after another lined up on both global and domestic fronts, but investment experts are not writing off the Indian stock market yet. Most of them concede the issues they are dealing with are extremely complex and they can't be wished away, but they still believe the new government would steer the economy to a better ground by next year, and investors, especially global funds, would start chasing Indian stocks once again.
"We were up 40% before the correction. If we close the year near the current level, we would be still be up by 30% plus, which is not bad at all," says Arun Kejriwal, Director, Kris. "However, investors should be very happy if they can make 18-20% from the stock market in 2015. But I am extremely bullish on 2016. I believe that hard work of the new government would translate into some numbers to show by then," he adds.
A sentiment-driven ride
"The mood was quite upbeat on December 14, but there is a lot of pessimism in the market in last two days," says Alex Mathews, head of research, Geogit BNP Paribas. The pessimism is hardly surprising considering the market is greeted with distressing news from abroad: tumbling of crude prices, freefall in emerging market currencies, gloomy data and forecasts from China and most of the Euro zone, among others, was keeping the market on tenterhooks.
The emerging domestic scenario wasn't very rosy either. The meltdown in the currency market is causing much heartburn among investors. The rupee has weakened around 2.4% since the beginning of the year against the dollar. Many market pundits believe that an anemic domestic currency is likely to force the Reserve Bank of India to hold rates, as a rate reduction is typically accompanied by flight of capital. Market pundits also say the market has lost many crucial supports and that is the main reason for the sell of that is taking place almost everyday when the market is opening. "We have broken many crucial supports in the last few days. We broke 50 day moving average (DMA in market lingo) on 15, and 100-day moving average on 16. When such crucial support is lost, the market is always met with huge selloffs," says Mathew. However, both the rupee and the stock market were up on Thursday after the US Federal Reserve said it is not in a hurry to raise rates.
The impasse in the parliament was also making some investors nervous. The central government was caught on needless controversies of its own making and it is struggling to get any business transacted in parliament. With key bills stuck in limbo, many commentators were questioning the ability of the government to initiate any meaningful reform measures. "We don't have any numbers to back up for the euphoria in the market. Everything was riding on hopes that the new government would deliver goods. Suddenly, some people were questioning the very premise," says a research head of a security firm, who doesn't want to be named. "Along with bad global data, it has unsettled quite a few investors," he adds.
Market may still deliver
When in doubt, get out of the market, says Mukesh Dedhia, director, Ghalla & Bhansali Securities. "Global events are impacting the market in a big way. We can't dismiss them lightly because we have seen in the past that they can ruin India's chances despite relatively better fundamentals," he says. "If you are a long-term investor of, say, five or 10 years, you have nothing to worry. But if you are trying to time the market or if you are lose averse, you would want to sit on the fence and watch how things are shaping," adds Dedhia, who was advising investors stay put during the last correction phase in the market. However, he is not for asking to stay put this time because he believes things are different this time. "It is a very complex situation," he says.
Arun Kejriwal also concedes the global factors can't be wished away. But he says the same factors would fuel the Indian markets further. "Even the man on the street knows that the country would grow at 6% bare minimum. Foreign investors will have to seriously consider investing in India because not many countries can offer that kind of growth rate," he says. He also believes the quiet, behind-the-scenes hard work by the central government would provide hard numbers in the next six months or so. "This government has the luck of the devil. The crude price fall alone would give its around one lakh crore rupees. It will give it a lot of leg room in the next budget. Also, the government seems to be very serious about rolling out GST by 2016. That alone can add 1.5% to 1.75% to GDP of the country. That means we will have a growth rate of 8%, which will attract lot of investors to the Indian market." The cabinet cleared GST bill on Wednesday.
Many market pundits maintain that none of these factors are likely to keep the market down for a long time. "This is a temporary phenomenon. The market may bounce back," says Mathews, who continues to be positive on the government. He believes that the government may be able to get insurance and GST bills passed during the current session of the parliament. Investors, especially foreign portfolio managers, are likely to greet the passing of these bills with a lot enthusiasm and it will be interpreted as the government's resolve to push further economic reforms, says Mathews.
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