Indian markets closed in the red last week. In fact, the Sensex was the worst performer among key global indices. A large part of the sell-off in India was due to pressure on stocks from the realty and metal spaces. Interestingly these are the three sectors that are closely linked to what's happening globally and domestically on the credit front. With Europe remaining under pressure and the US economy showing signs of falling into another recession, investors in these sectors in India are a shaky lot.
Let's talk about realty first. Companies from this sector were the
biggest beneficiaries of bailout provided by the Indian government last year. This helped them improve their balance sheets by reducing debts. But in return, what these companies have done is go back to their greedy best. By raising property prices even when the demand has not recovered fully, these companies have forced genuine buyers out of the market.
The RBI has taken note of this and has tightened bank lending to the realty sector. Apart from that, rising interest rates has also taken a toll on these companies of late. Now the fear that the world might go into another round of economic crisis, has hurt the sector.
As far as metal stocks are concerned, their fall can directly be attributed to the weak global economic climate. Concerns over demand after poor data from US and China have acted as a dampener for commodity prices in recent times. And the impact has thus been felt on commodity stocks.
Considering the global uncertainty and caution regarding the RBI's interest rate stance, both these sectors are expected to remain volatile in the near term. As far as the broader markets are concerned, high valuations will weigh heavy on stock prices.