India: Stopped catching cold? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

India: Stopped catching cold?

Sep 1, 2003

"When the US sneezes, the rest of the world catches a cold," was indeed the most cliched term that was used regarding the behaviour of stock markets post the burst of the bubble in 2000. And this was true for the Indian equity markets as well, mainly because of the fact that during those times (pre and post the bubble), movements on the Indian markets were guided, up to a great extent, by those on the US indices. However, this was assumed to be one of the alarming illustrations of globalisation, and that of integration of global financial markets. Never ever had the Indian equity markets mirrored the US indices in that manner.Much seems to be changing now, or so it seems. And this change is not restricted to the behaviour of the stock markets in this country. Even when the US economy is not showing any signs of sustainable revival, the Indian economy has a different story to tell. Also important to note is the fact that equity markets in India now seem to be more guided by internal factors rather than by external ones (read, the US). While this is not to deny that the integration of Indian markets with global ones has ceased to exist, this is rather indicative of the fact that movements in the former are now more a result of fundamentals of its constituents, i.e., listed Indian companies, rather than a reaction to what happens on the American indices.

The graphs below depict the movement of the Sensex vis--vis other major global indices - the Dow Jones Industrial Average (DJIA, US), FTSE (UK) and the Hang Seng (Hong Kong) over the period beginning year 2000. While these graphs are only indicative of the changes that have taken place on these indices, what has gone behind these movements is of much greater importance. Take the case of the DJIA. This index, along with the NASDAQ, is probably the best indicator of what happened post the dot-com bubble burst. A crash in technology stock prices led to such investor pessimism that they became suspicious even about the growth of old economy sectors. And then, this downward movement on the US indices was echoed around the global markets. The rest is history (worth remembering as a tough lesson learnt)! Ironically, the gains on the Dow, in recent times, are mainly a result of optimism about economic recovery, mainly led by companies from the old economy sectors, while clear signs of a recovery are still not visible.

The US indices also guided movements on the FTSE and the Hang Seng. The reason for this is the absence of any real recovery in these economies (the UK and Hong Kong). While Hong Kong has gained a bit (probably due to its relation with the Chinese economy), movements on the FTSE have not been encouraging, mainly due to the underperformance of the British economy.

Coming to the Indian index, the Sensex followed the same route as the above-mentioned global majors, till around October 2002. However, since then, it has witnessed a sustained rally - sustained because there has not been a major correction in this rally, apart from the period between December 2002 and April 2003. But since then, the rally has been almost uninterrupted. While this upward moment of the Sensex indicates increasing optimism about the growth prospects of the Indian economy, the fact that Indian markets still lack depth and resilience, cannot be ignored.

There is a reason for this lack of depth, breadth and resilience - the absence of that part of the Indian economy where the real action lies. By this, we mean those innumerable Indian companies (known and unknown) that are not listed on the bourses. TCS, International Tractors, Amul and Cognizant are among the better-known companies from among unlisted Indian companies that are witnessing tremendous growth. And because of them being unlisted, Indian investors are deprived of participating in their growth. Our markets would be stronger when we have more (and better) options to choose from. Also there is still a lack of confidence among the average Indian investor with respect to the stock markets, which leads to lack of depth in the same.

Finally, while the Indian markets seem to have stopped imitating their US peers, the herd mentality still rules the roost. Speculators (and not investors) continue to call the shots (the recent escalation in prices of banking, software and steel stocks are some of examples). Thus, the need of the hour for investors is to assess their risk-return profile as well as fundamentals of different investment options in an unbiased manner, in order to differentiate oneself from the crowd.

Equitymaster requests your view! Post a comment on "India: Stopped catching cold?". Click here!


More Views on News

IDFC Mutual Fund Starts Campaign 'SIFI'. Should Buy Into the Idea? (Outside View)

Sep 23, 2020

IDFC Mutual Fund is taking the road less travelled and hence started a campaign SIFI (SIP in Fixed Income) to promote the concept of SIP for its debt funds investors.

My View on the IPO Market (Fast Profits Daily)

Sep 23, 2020

In this video, I'll share with you my thoughts on the recent spate of IPOs and what it means for the market.

I Believe These Stocks Will Deliver the Most Outsized Returns in 2021 and Beyond (Profit Hunter)

Sep 23, 2020

Rules of the racetrack can help you bag the biggest gainers of the coming decade.

An Important Hurricane Update for Energy Traders (Fast Profits Daily)

Sep 22, 2020

In this video, I'll show you how the extended hurricane season in the US will affect traders in crude oil and natural gas.

Mutual Fund Investors Will Now Be Allotted Units Based on NAV of the Day AMCs Receive Funds (Outside View)

Sep 22, 2020

PersonalFN explains how SEBI's new circular on mutual funds impact investors.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 23, 2020 (Close)