Indian Stock Market Analysis

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How has Indian stock market been faring? India has the lowest Exports/GDP ratio, yet when the world was in trouble, the Indian stock markets were hit the most. Indian stock market analysis reveals it has witnessed extreme activities and is slowly gaining more importance due to its high volatility.

The trend of the Indian stock market has shown integration with the global markets and how dependant was the Indian stock market towards the outside world. Any small developments in the world stock market have always affected the Indian stock market in a huge manner. The analysis of the Indian stock market has revealed that Indian bourses have performed in tandem with their international counterparts.

Analysis of the Indian stock market

The Indian equity market kept on sliding in September 2008 with the S&P CNX NIFTY, showing the second sharpest fall since January 2008, with a decline of around 10%. With all courtesy to the US financial markets and its crisis bug, an estimated amount of Rs 2.3 trillion of shareholders' wealth were eroded in the Indian stock markets.

Global meltdown and Indian stock market

The Indian stock markets are in a tizzy. The impact of the global sub-prime crisis, known mainly as the 'financial tsunami', emanated from the US and spread its wings across the world. This has resulted in a whirlwind, sweeping the Indian capital market off its feet. The Sensex fell from an astronomic high of 21,200 as on January 2008, to below 9,000 mark as on October 2008, with a fall of 35% in the month of October alone.

Reason for Indian stock market fall

The FIIs (Foreign Institutional Investors), in the last few years had been a strong growth driver for the Sensex. They have been investing billions of dollars in the capital markets, fuelling high valuations, which in turn sharpened the appetite for expansion, acquisitions and higher corporate growth. Based on supernormal profits (CAGR of 33% in last five years as against lack luster performance in the 1990s) in the corporate sector, they have been charting ambitious plans for capital expenditure and suitable acquisitions even in the global markets.

The Indian retail investors too, buoyed by the strong economic growth adopted aggressive investment and wanted to gather above normal returns. The high commodity and real estate prices were the red flags that were accompanied with the strong up trends.

All the three stakeholders - the market, investors and corporate management now have to share the 'spoils' of the market. Contraction, deflation and recession - all these have become the buzzwords in economies worldwide. In the context of globally 'integrated markets', the sub-prime crisis had different levels of impact in the emerging capital markets including India.

The fall of the big investment banks in the US and the global liquidity crunch forced the FIIs to liquidate their positions in the Indian stock market leading to the steep fall in the Sensex. The redemption pressures on mutual funds have not helped either. Locally, investors - retail, HNI and institutional have shown a hard mentality ignoring warning signals from the economy and markets and continued to take a bet, initially based on fundamentals and then on sentiments.

Investors particularly retail have been caught unprepared by the steep fall in Sensex and are now sitting on huge losses. While the underlying fundamentals of the economy still remain strong, quite a few sectors like exports, real estate, IT and commodities (not all of them with inherent speculative tendencies) are facing most of the brunt of a slowing economy. The corporates, some of them with cash-rich balance sheets had been taking on ambitious expansion plans and that too over a longer time horizon. With credit flows from banks slowing down (banks are hesitant to even trust each other!) corporates are finding it difficult to carry out some of these plans as their valuations have come down and raising funds from other sources has become difficult. All the three stakeholders appear to be pulled into a whirlpool of greed, overstated ambitions and 'irrational exuberance', reaching new highs.

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