Well let us look at the Indian market from a foreign investor’s point of view:
Indian markets (as also China) is down by 18% over the past one year. If you are a foreign investor add another 14% of currency depreciation. It is not a pretty picture, correct?
It must have been quite a shocker for people who thought India was a domestic consumption driven market – and actually runs a small trade deficit. The Indian markets peaked in Nov last year and then has been on a ride down. From 21000 to 16000 now.
What caused this UNEXPECTED slump? It is not clear. Indian politicians have always been corrupt – however some new social changes – of wanting to punish the corrupt suddenly found ground support and has been shaking the governments. This movement has had an impact even on a few local elections. No major polls have been announced after this movement gained momentum. Also there was a Telecom scam where the Minister in charge of the licensing process was even jailed. Jailing corrupt businessmen, their executives and even a Minister that too for 180 days is unprecedented in India.
The FII cash flow into India in the year 2009 was US $ 17 billion and they invested US $ 29 Billion in the year 2010. In the year 2011 there has been a withdrawal – of about US $ 325 Million. In a country with very poor retail participation (there are no accurate figures for this – it varies from 1,000,000 to 10 Million!) exit of foreigners’ money was bound to have an impact.
India has many problems – the rate of inflation is in double digits. The RBI would love it if the economic growth rate and the inflation rates were to trade places, but there are no indications of that happening! The Indian growth rate of 6-6.5% is not bad, but when the expectations were in double digits, such a low figure of 6-6.5% (with a downward bias) does not look good at all.
If US $ 30 billion were to come in – and that too quickly what would happen? If retail FDI was really allowed what could happen?
These are difficult to handle. However a 7% growing economy with a beaten down market and a beaten down currency is very difficult to ignore. So money will come in. Will the markets scream its way to the top? No. Frankly there are no great triggers for the market to RUSH up all the way to 21000.
However we all know that triggers for a bull market or a bear market are not visible TILL THEY HAPPEN! So suddenly you might see cash flow coming in, quarterly results being good, interest rates coming down, a feel good factor – and the index could be at 21k in no time at all !
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