Mahesh Nayak, senior associate editor, Business Today
Past three weeks Indian equity market ended in red. Last week the Indian equity market ended at an 8-month low of 26,425, trading nearly 4 per cent below its December 31, 2014 closing.
At the beginning of the year, the Sensex was at 27,499.42 that surged to an all-time high of 30,024.74 on March 4, 2015 and thereafter concerns over India's slow economic recovery, concerns over US Fed hiking interest rates, slowdown in FII flows, weak Indian currency and rising crude oil prices from its low pulled down the BSE Sensex. From the all-time high levels the Sensex in the past three months has lost 12 per cent.
The Sensex losing 12 per cent from its high isn't much of a worry and the market has already discounted the slowdown in corporate performance.
The uncertainty over monsoon, slowdown in economic recovery, the pain in the banking system and food inflation may keep markets subdued for some time following the pain surrounding domestic issues, but the really concerns currently for Indian market is the slowdown in the foreign flows following uncertainty in the global economy.
In the last 40 days the FIIs have removed slightly more than $1 billion.
All eyes will be on the US Fed which will review the US monetary policy on Tuesday and Wednesday, June 16 and 17, 2015. Though not much is expected as the market feels US will keep rates unchanged, but everyone will be interested to know when the US Fed will increase rates in US when the other major economies in the world are struggling for growth.
On June 18 and 19, Bank of Japan will review its monetary policy.
Though market is concerned of US raising rates, in reality weak data will see US Fed keep easy liquidity situation with a possibility of a fourth quantitative easing in the coming months.
Similarly there are new concerns emerging in the Euro-zone of some banks on verge of bankruptcy is creating jittery in the markets.
Though another Lehman Brothers will be a disaster for the globe, it's still a low probability as the governments across the globe will try and avoid such disaster.
But the weakness in the global economy will see easy liquidity situation in the world.
Coming back to the Indian market lack of trigger has seen almost everyone becoming cautious and the week is expected to remain volatile.
Though IIP data and CPI data has been a surprise and would be interesting to see how market will react, but the positive will be short lived following overall uncertainty and weakness in the domestic and global economy.
However as reiterated in the past the current market condition is not a market to experiment but stick to fundamentals. Saying that rather than waiting on a sideline it could be a good idea to venture on dips because the negative in the domestic market has been factored and with global liquidity to remain easy some flows would come into the markets like India which is structurally still strong and sound. One of the reasons being global pension and superannuation funds that want more returns on their investments.
They are looking for markets like India which can deliver them 9-10 per cent return minus the currency risk.
India gives this opportunity and money will come in and therefore Indian investors should not look at India from a domestic standpoint but from a global standpoint for investment in debt or equity.