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After 20 per cent plus real returns (nominal returns minus consumer price index) in 2014, the sharp drop on Tuesday when the Sensex shed almost 900 points – the seventh worst single-day fall – may suddenly bring back the sordid memories of 2008 for investors. It’s for a good reason as well. The earlier six instances of sharp falls happened in 2008 and 2009. In 2008 alone, there were five single-day falls of 875 points and higher.
But things are remarkably different this time. The main reason: The sharp fall in the crude oil prices. According to market experts, the savings from crude oil will lead to falling in inflation and lead to a good $10 billion savings for consumers. The government is expected to save another $20 billion. “This will allow consumers to save/spend/invest more. Even the government will have more money in its hands,” says a head of a brokerage house.
Importantly, consumer price index numbers have entered into a lower trajectory. In November, the consumer price index hit 4.2 per cent and the year-to-date average in 2013 was 7.4 per cent. In the coming months, the consumer inflation rates are expected to fall further. In comparison, the average consumer price index in 2008 was at 8.32 per cent which went up to 10.83 per cent and 12.11 per cent in 2010 and 2011. Clearly, we are on a stronger wicket this time.
Yes, there are fears of global downturn that will spoil market mood and flows from foreign institutional investors may slip once the US Federal increases rates. But experts believe that the fears may be overdone. “As long as we deliver growth, money will come in. In the past, we were getting money from India-dedicated funds, but now more and more global equity funds are willing to put money, then there are family offices and private equity funds who are bullish on India as well,” says a fund manager.
Many believe that in the light of global problem, the increases in the US rates will be gradual... slow enough for the stock markets to discount them. Last year, fears of tapering off of the quantitative easing impacted the markets adversely. But when it actually happened, the impact was limited. In other words, a rumour or expectation of a particular event impacts the market more than the actual news... buy on rumour, sell on news anyone?.
All these point towards a pleasant 2015. Even if returns are lower than 2014, real returns are likely to be decent.
(The author is an Associate Editor of Business Standard)
