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Market On A Slippery Ground

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Indian equity continued its losing streak with the Bombay Stock Exchange (BSE) 30-share Sensitive Index (Sensex) sliding for the fourth consecutive week to end at a 2-year low. The Sensex lost over 4 per cent during the week to end below the psychological 16,000-mark at 15695.43. In the last 18 sessions, the Sensex has lost 12 per cent from 17804.80 on 28 October 2011. For the year so far, the Sensex is down 24 per cent. The market is on a slippery ground following the uncertainty over the Euro-zone crisis and lack of trigger in the domestic market. As nothing concrete seems to be coming from the government in the near-term, the movement in the Indian market will be dictated by the event unveiling in the west. In the coming week, the Q2 GDP report would clearly tell us as to where things stand as far the Indian economy is concerned and could indicate the future course for the market. Otherwise, it will be in tandem to developments in the US and the Euro-zone. Amar Ambani, head of research at India Infoline, said: "The undercurrent will remain weak, until European leaders find a lasting solution to the debt crisis." He says, today they are struggling in containing the financial malaise amid fears of it spreading to the core of the Euro-zone. At the same time there are worries surrounding US, Japan and the UK which is impacting sentiment across financial market.  Despite valuations being attractive, concerns surrounding domestic and global economies has seen players sitting on the sidelines. This was also evident from the low rollover in the index (Nifty) future. Last week, was the future and option (F&O) expiry for the month of November 2011 and investors sold off their position to sit on cash. The rollover in Nifty was at 64.30 per cent, compared to a three month average of 71 per cent. A dealer from the local brokerage in Mumbai, said: "The fear of losing more has seen most of them even cut losses." Though foreign institutional investors (FIIs) have been selling, domestic institutions (FIs), especially insurance companies have been buyers in the market. According to the National Stock Exchange (NSE), for the month till 24 November, FIIs were net sellers in equities to the extent of Rs 5,114 crore, compared to a net purchase of Rs 3,330 crore by domestic institutional investors. Says Shuja Siddiqui, vice president & head at Motilal Oswal Wealth Management, "We are at the bottom and it's unlikely that the market may witness a sharp fall from these levels. Though the market may tank, which is possible, the fall will not be sustainable and at lower levels it will be quick to bounce back." However, he is quick to add that the macro issues surrounding both politics and economics in local and global markets will ensure the market does not scale higher and the Sensex trades in the 16,000-18,000 range. The confidence about the Indian market being able to bounce back is fuelled by expectations of strong corporate performance. Despite the dismal September ended quarterly performance, the expected earnings (EPS) for the Sensex for FY2012 has just been revised by one per cent to Rs 1,131 from Rs 1,142. This means the Sensex is today at a forward price-to-earnings (P/E) ratio and trading at 14 times. While for FY2013, on an estimated EPS growth of Rs 1,331, the Sensex P/E is trading close to 12 times. "We are not concerned about growth for India Inc, but the rate of growth. Companies related to IT, FMCG, banking, pharma and telecom will post growth. Though there are concerns over foreign exchange losses in telecom companies, other sectors will record good performance," says Siddiqui. He says, "Concerns continue in sector like engineering and real estate. Till there is no reform from the government in sectors like engineering it will languish." In the last two months, the Sensex has been yoyoing, hovering between 15,800 and 17,900 levels. Initially it fell from a high of 17,211.80 on 9 September 2011, to touch a low of 15,745.43 on 4 October 2011; thereafter buying spree at lower levels witnessed a vertical surge in the Sensex to touch a high of 17,908.13 on 28 October 2011. And once again, selling pulled the Sensex down to a low of 15,478.69 on 23 November 2011, only to recover somewhat to close at 15,695.43 on 25 November 2011. It all boils down to developmental reforms from the government. Says a chief investment officer from a domestic mutual fund on condition of anonymity, "Valuation are attractive, behavioral factors are positive, the only missing link is a trigger. The government has to find ways to lower interest rates, until there is a secular fall in rates we aren't expected to see any huge upmove in the market." He says: "It's not the Reserve Bank of India, but the government and its reform process will help bring down interest rates. If you open up investment windows, it will bring down interest rates." Though the Cabinet approval on foreign direct investment in multi-brand retail and the Companies Bill is a good trend and may even keep the market positive for a short while, it will only be developmental reforms that will help the markets. Until then, the markets will continue to remain fragile.