 "Markets should focus on near-term corporate earnings")
Indian markets have been riding the hope wave for nearly a year now. The lure of 'achche din' along with large doses of liquidity have helped benchmarks touch new highs almost every month. Foreign investors pumped in $42 bn into Indian bonds and stocks last year. Another $7 bn have come into India since the start of the new year, after global brokerages came out with eulogies on India's growth and earnings potential. Indian markets seemed invincible less than a month ago, with benchmarks rising 8 per cent in January.
Despite this rush of liquidity, the legs of this hope rally are getting shorter by the day. After January's rise, benchmarks have corrected 5 per cent. And if sanity prevails, then some more correction is not ruled out. Depending on who is analysing this decline, the fall can be blamed on weak Chinese growth, Grexit or even the outcome of the Delhi elections. Given that Indian markets have been running on hope and little else, any reason will be good enough to drag the benchmarks down.
For any bull run to sustain, corporate earnings have to show growth. And India continues to see earnings cuts, despite the higher GDP growth print. Foreign investors seem to be taking the cue from earnings by turning cautious on select sectors that have run ahead of fundamentals. Explaining the 490 point fall in the Sensex on Monday, the head of fundamental research at a brokerage says this: "The latest development in Delhi should have provided added factor to the consolidation but considerable factors to the fall are no rate cut in the near-term, poor results and concern in Euro. As a result banks, infra, metals and capital goods are giving highest impact."
Third quarter earnings are now making the markets go weak in the knees. Equity strategists thought that they were realistic by factoring in 4-5% earnings growth in the December quarter, but reality seems to be much worse than that. That there is no visible change on the ground as far as domestic growth is becoming visible in corporate earnings. Banks continue to accumulate stressed assets while consumer companies are seeing consumption slow down even further. There is no sign of good days in any sector of the Indian economy.
The outlook continues to remain dim for metals, oil & gas, banking and consumer companies. Of course, not to forget the stress information technology is expected to face thanks to currency cross-currents in FY16. And for those who believe India's long-term potential remains intact, here's what John Maynard Keynes said about the long run: “But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” Paul Krugman has also attacked the obsession with long-term by terming it "craven and irresponsible", even if was in the context of the US Budget.
Despite this rush of liquidity, the legs of this hope rally are getting shorter by the day. After January's rise, benchmarks have corrected 5 per cent. And if sanity prevails, then some more correction is not ruled out. Depending on who is analysing this decline, the fall can be blamed on weak Chinese growth, Grexit or even the outcome of the Delhi elections. Given that Indian markets have been running on hope and little else, any reason will be good enough to drag the benchmarks down.
For any bull run to sustain, corporate earnings have to show growth. And India continues to see earnings cuts, despite the higher GDP growth print. Foreign investors seem to be taking the cue from earnings by turning cautious on select sectors that have run ahead of fundamentals. Explaining the 490 point fall in the Sensex on Monday, the head of fundamental research at a brokerage says this: "The latest development in Delhi should have provided added factor to the consolidation but considerable factors to the fall are no rate cut in the near-term, poor results and concern in Euro. As a result banks, infra, metals and capital goods are giving highest impact."
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While their exact reason is not clear, foreign investors have turned net sellers after eulogising India's potential till January this year. Weeks after predicting India outpacing China's growth by FY17, there is a quiet realisation that more than Greece or China, Indian markets should remain focused on corporate earnings. No matter what the long-term potential is but as of now it is clear that Indian companies are nowhere near double-digit earnings growth.
Third quarter earnings are now making the markets go weak in the knees. Equity strategists thought that they were realistic by factoring in 4-5% earnings growth in the December quarter, but reality seems to be much worse than that. That there is no visible change on the ground as far as domestic growth is becoming visible in corporate earnings. Banks continue to accumulate stressed assets while consumer companies are seeing consumption slow down even further. There is no sign of good days in any sector of the Indian economy.
The outlook continues to remain dim for metals, oil & gas, banking and consumer companies. Of course, not to forget the stress information technology is expected to face thanks to currency cross-currents in FY16. And for those who believe India's long-term potential remains intact, here's what John Maynard Keynes said about the long run: “But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.” Paul Krugman has also attacked the obsession with long-term by terming it "craven and irresponsible", even if was in the context of the US Budget.