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Indian markets, after being one of the top performers globally through most of this calendar year, have been the worst performers in the Asian region in December so far. The benchmark stock indices, the BSE Sensex and the National Stock Exchange’s Nifty, have respectively lost around seven per cent and six per cent, compared with 2.5 per cent to 5.5 per cent losses for Asian counterparts.
On Tuesday, sentiment across the globe was weak after a spate of bad news — falling crude oil prices, Russia increasing its key interest rate to 17 per cent from 10.5 per cent as an emergency move to halt the rouble’s collapse and economic data from China showing a contraction in the manufacturing sector of the world’s second-largest economy.
In India, the benchmark indices closed nearly two per cent lower than their respective previous closing figures. The fall in the mid-cap and the small-cap indices was even sharper — three per cent and 3.4 per cent, respectively. The rupee, too, weakened to 63.46 a dollar, the lowest level in 13 months. (GIVING UP GAINS)
Among sectoral indices, oil & gas has been hit the hardest in December. The BSE oil & gas index has lost nearly 12 per cent, followed by metals & realty (around 11 per cent each), power (10 per cent), capital goods (nine per cent), and information technology (IT) index (around eight per cent).
Foreign institutional investors (FIIs), which have invested Rs 103,224 crore ($17.09 billion) so far in 2014, have sold equities worth nearly Rs 2,500 crore in the past five trading sessions, data suggest.
Ambit Investment Advisors Chief Executive Andrew Holland says: “One must not forget the Indian markets were one of the best performers globally in 2014. So, despite a six per cent fall so far in December, their gains remain decent. Whenever there is a global turmoil, such as Russia increasing its interest rate by 650 basis points (bps), there is an obvious cause for concern. Besides, it is that time of the year when people take some money off the table and manage risks accordingly.”
The road ahead
Despite the recent fall, analysts do not seem too worried about the road ahead for equities as an asset class. They remain cautious amid global developments but see the decline in indices as an opportunity to buy for the long term. Holland, for instance, says he is less worried about the rupee at this juncture. His view is that the interest rate might fall sharply and the rupee could be reflecting that.
“The next few days will be interesting and one must wait and watch how the interest rate increase in Russia plays out in terms of stabilising the rouble, and how low the oil prices drop to. I think Brent crude oil prices still have more downside left. The markets are expected to remain volatile for some time,” he says.
Taher Badshah, senior vice-president and fund manager at Motilal Oswal AMC, suggests it would serve as a good entry point for investors if the markets were to correct another two-three per cent, as a lot of issues — both global and local — will get discounted.
“In fact, by then, some of the stocks will have corrected more than the broader indices. So, at a stock-specific level, there would be better opportunities available. The sectors likely to lead the market recovery will be banks, especially public sector ones, as they have taken a bigger knock in correction. Consumer-related stories, such as automobiles and consumer discretionary, will also continue to be supportive. So, investors who missed out on those stocks should look to buy in this correction,” he advises.
