Will Indian markets crash soon? - Views on News from Equitymaster

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Will Indian markets crash soon?

Jun 30, 2010

Chinese markets crashed 4% yesterday. The US was down almost 3%. Even European markets weren't spared. Amidst all this, Indian markets have been less severely hit. So the question that raises its head now is - Will Indian markets also see a correction soon? After all, how long can Indian stocks do well while stocks globally are feeling the heat?

Data Source: Yahoo Finance
We know this for a fact that Indian markets have always been impacted by global factors. So whether it is weak unemployment numbers in the US, or liquidity concerns in China, stocks in India have taken the hit. And as we see now, the economic situation globally isn't cheery at all! The three bugbears that are impacting sentiment are - Europe, US, and China.

Let's look at them one by one.

Europe: It's cloudy in Europe as of now. And not just the weather, we are also talking about the economic situation in several Euro nations. Right from Greece in the south to Spain and Portugal in the west, these countries are facing a severe debt crisis. In fact, the crisis facing the region's single currency (Euro) is by far the deepest in its short history. Governments there have created an emergency fund to deal with the crisis, but measures still seem short given the magnitude of destruction it can cause. Rising unemployment, political turmoil, cuts in government spending and falling consumption are the biggest risks this region faces over the next few years.

US: It's an age-old story in the world's richest and most arrogant financial economy. The worst part is that those who caused this crisis in the first place are not ready to apologise and take lessons from their misdoings! Financial regulations are trickling in but these mostly seem like half measures. The US government is still willing to bail out big companies. And the central bank is ready with its presses printing loads of dollars to tide over any cash crunch. In short, the Americans are trying to get over the crisis fast using measures that caused the crisis in the first place! So, the situation remains hopeless in the US.

China: This elephant seems to be dancing wild. Many now fear that the Chinese economy is going to come to a screeching halt. And China seems to have emerged as the biggest worry for the global economy and markets. The country is trying to cool down the bubbles that seem to be forming in its realty and stock markets. This cooling off is being seen by many as a sign of sharp slowdown in demand for commodities. Even the slowdown in Chinese consumer demand is being feared.

So, here were the concerns that are rocking global markets, including India.

Coming to our own issues, the key ones here are - rising inflation, huge government deficit, and fear of higher interest rates. On the brighter side however, there are factors like oil price deregulation (even if it seems like a token measure) and good monsoons.

As far as corporate performance is concerned, there is no doubt that good sales and profit growth are back in vogue. Companies are also looking at paring down their debt and thus lower pressure on their balance sheets. Weak commodity prices are also seen as leading to margin expansion for manufacturing companies. Consumer demand is picking up for companies in the auto and FMCG space. Though property demand is yet to pick up pace, we have almost lost hope there, given builders' greed that is keeping real estate prices artificially high.

So overall, the internal situation in India is somewhat mixed.

How will the stock markets perform given all these factors?

We believe Indian markets may also feel the heat of the global crisis sooner than later. But isn't a correction in stock prices expected (and not feared) in this year?

See, we all fear corrections. And we all feel the ardent need to do something when a correction like event strikes, even if we expect it to be just a minor one. Like selling some stocks, fearing the markets might go down even further.

But then, we believe that after the sharp rise in stock prices we saw in 2009, a correction this year should be expected and not feared. Corrections are just a normal part of stock markets and do not alter the overall bull market trend. And given the way India's economy and companies are evolving, the markets will definitely be in for a good time (notwithstanding the normal hiccups) over the next 5 to 10 years.

One must also never try to time a correction. It is nearly impossible. Anyone can give into fears, pessimism, and crowd mentality. But what distinguishes a successful investor is discipline and patience.

Investing systematically and in good quality stocks, without trying to time the market or fearing a correction, is the way to go. The European, US, and Chinese fears are not going to evaporate anytime soon. But these will not alter the course of good investments if you have a 5 to 10 year horizon.

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7 Responses to "Will Indian markets crash soon?"

joginder obhroi

Jul 9, 2010

ANYTHING THAT GOES UP HAS TO COME DOWN THAT IS A UNIVERSAL LAW.

Like 

Suryakant

Jul 7, 2010

Its very difficult to predict the Indian stock markets. Keeping the market behavior and the Global financial situation in view, the markets should correct anywhere between 250 to 300 on Nifty. WHEN is a ? mark.

Like 

akkiraju srinath

Jul 5, 2010

It is trite to say that all will be well in the long
run. No doubt all will be well given the Indian growth
story in the next 20 years to come. When when a
correction comes one must be able to predict the same at
least with some degree of correctness as to time and
extent. About 80% of trading volume on the indian
bourses comes from derivative trading and there are not
very many long time stock investors around. If that were
so, the stock market would be dull place. Anyone can
write articles with generalizations and abstractions.
What happens to the market in the shorter term of say
next week or the next month is the most important issue
to be tackled.

Like 

Don Pereira

Jul 3, 2010

A concise yet detailed article for investors looking for Long Term Appreciation in their Portfolios. Nice & 2 the point.
Scripts like ITC,RIL L&T, Tata Coffee, ACC, r good cos. which seem on track to deliver returns over a long period of time. Buy greedily if there is a major panic, chances are , it would be worth the investment. Don.

Like 

Pyare

Jul 1, 2010

Mukesh knows everything that will goint to happen in the future. He is God.

Like 

mukesh

Jun 30, 2010

The rangebound mkt.is going to make higher top and lower bottom.This way--now onwards 5175(if fall continues)otherwise bottom is placed at 5230.Then 5490topping out here.now to make bottomat 4914.Then again uptrend to topout at 5595/5742(in the month of August-8Aug.)to make bottomat
4448/4468.Then straight to jump 6112 nonstop.(in the month of October-2010)

Like 

George Thomas

Jun 30, 2010

There will not be a heavy downfall, though the market may play down a bit.

Like 
  
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