Why stock markets may not go anywhere? - 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?  

Why stock markets may not go anywhere?

Sep 16, 2000

Earlier this financial year, the stock market rally came to an abrupt halt with the bursting of the software bubble. What followed was a period involving taxing foreign investors registered in Mauritius, drought in some states and finally rising inflation and volatility in the forex markets. Added to this was the sharp rise in crude prices. Further to this were other factors weighing down on the market. These included the failure of the government to push through with disinvestment of holdings in public sector undertakings (PSUs). Also, the increasing uncertainty and volatility involving flows of foreign money took their toll on the market.

To counter that, we had a fundamental improvement in the economy. Or as the Reserve Bank put it in its Annual Report - a resilient economy. Exports accelerated sharply during the current fiscal year, touching a peak growth of 30% in April and May. The government, very surprisingly, seemed to be getting a grip over the fiscal deficit. Added to that we had a brief period of declining interest rates.

Read more on the Indian Economy

Now however even the fundamental positives seem to be losing their sharpness. The burgeoning deficit in the oil pool account is nearing the Rs 100 bn mark and threats to increase uncontrollably. This is likely to exert pressure on central government finances as the government tries to absorb a part of the deficit in view of elections in key states early next year. Exports growth has slowed down and so has the growth in industrial production. The key reasons for this have been the drought and the subsequent floods in key markets. Also, worries have surfaced regarding the trade deficit, which could have implications for the forex markets.

Letís step back and look at what actually spurred economic activity last year. It was higher demand for consumer goods and a fast growth in production of intermediaries. Investment demand, so necessary for sustainable economic growth, was absent. Even at present, investment demand (especially in the manufacturing sector) continues to remain abysmally low. This is also indicated by the sluggishness in non-oil imports.

So presently we have a stock market that is short of positive news flows. The nearest thing to look forward too will be the corporate results for the quarter ended 30th September. In all likelihood, software companies will continue on their trail-blazing path. However, old economy stocks could witness some pressures on margins as costs rise. This is not to say that software companies will be left untouched by this. Infact, higher inflation would result in investors demanding higher returns from stocks, which would call for a correction in stock prices across the board. And letís not forget, the last time crude prices jumped to these levels, a large part of the global economy fell into recession (albeit short lived). Finally, the markets could be hit by the central bankís attempts to cool down pressures on the price front.

Presently, the scenario for the markets does look pretty gloomy. What we need is positive news flows and this could come in the form of PSU disinvestment and fresh second generation reforms. These news flows have the potential to let the markets push all the not-so-good news aside and continue to push higher. But should one expect the government to finally take tough decisions. Well there is no harm in expecting the unexpected from the government. After all in the recent past, the government has always done what the market never expected them to doÖ.nothing!

Equitymaster requests your view! Post a comment on "Why stock markets may not go anywhere?". Click here!


More Views on News

BSE Sensex Surges 707 Points; BHARTI AIRTEL Among Top Gainers (Market Updates)

Sep 25, 2020 | Updated on Sep 25, 2020

The BSE Sensex Surged 707 Points; BHARTI AIRTEL Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at equitymaster.com.

Your Queries on the 8-Year Cycle Answered (Fast Profits Daily)

Sep 25, 2020

You've sent in your queries on my videos on the 8-year greed and fear cycle in the market. I'll answer them in this video.

It's When You Sell that Counts (Profit Hunter)

Sep 25, 2020

How I alerted readers to the impending crash last week.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

How to Save Money by Exiting Stocks Before They Fall podcast (Views On News)

Sep 24, 2020

A penny saved is a penny earned. It doesn't matter where you enter. All that matter is where you exit. Watch this video to identify an opportune time to exit your investments and book profits.

More Views on News

Most Popular

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.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

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...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...


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 25, 2020 (Close)