The Hindu Business Line : The gravy train labours to a halt...

WAIT-AND-WATCH: Over the last five weeks, the benchmark has fallen to a five-month low. Analysts are suggesting various waiting periods ranging between a couple of weeks and couple of months. — Paul Noronha

For some Dalal Street investors, both local and global, the gravy train should have run endlessly. Till recently the Sensex was sizzling. Every one was happy paying almost any price. The Indian GDP growth rate seemed so reassuring when compared with that of "unpredictable" China that the macro market forward P/E of high teens appeared only a "little stretched". One of the best returns on capital made the world sit up and think God must be Indian.

Only last week, Mr David Chavern, Chief Operating Officer of the US Chamber of Commerce, went on record saying: "A lot of financial activity that historically had come to the US isn't coming here anymore." He felt that the increasing importance of emerging markets such as India was the reason.

Then why all of a sudden have investors become unsure about valuation of Indian equities. Is it simply because the valuations have been falling? Over the last five weeks, the Indian benchmark has fallen to a five-month low.

Wait until dawn

Analysts have suggested various waiting periods ranging between a couple of weeks and couple of months. The common refrain is: Let's see if we get several good days of increase in the benchmark index, if the oil and yen stays down, if there was still no evidence of any kind of major dislocation in the global and the local economic indicators. And if the markets settle down, then, perhaps, one may look around for opportunity.

Some strategists in the international investment fraternity would go a step further: If you made money in the emerging markets like India, Turkey and China, take some of the profits and rotate that back into the US large-cap stocks.

The advice would invariably end with words like: "If you are long-term, you probably don't need to do much. Only make sure you are in high-quality assets and staying the course."

Vulnerability

The influence of the recent turmoil in the global financial markets on Dalal Street equities has once again underlined the fact that Indian equities no more enjoy the benefits of a cloistered market. In grappling with the reality, the local market's history is not of much help in finding a safe haven at such times.

But the so-called global cues also appear to provide only excuses. For example, the Chinese average, which dipped the most on February 27, has recovered better than the Indian benchmark. The threat of a yen carry-trade blow-out has also blown over.

The current correction has once again driven home the cardinal principle that nothing is sacrosanct in the market place, not even the long-term growth story. In the short-term, if things go awry, all pretence may disappear.

There has never been shortage of yen for leveraging and speculation on Dalal Street in the past. However, over the last few years, the trading dynamics of the market have undergone a significant change owing to gradual reforms in the regulatory framework, increased participation and global linkages.

Drifting times

This comes a time when everyone is looking at the other to make a move. As re-assessment of valuation takes a backseat, negative momentum is the cause and a downward drift is the effect.

More Stories on : Stock Markets | Outlook | A Ringside View

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Alert for high winds, hail in Northwest India

HeidelbergCement plans plant in Gujarat

I am inclined to join only Reliance, Tata Motors, says Mashelkar

Global imbalances and petro-dollars

Domestic dredging cos get policy support

As road becomes costly, RINL switches to the sea-lane

Credit-starved UP sugar mills piling up payment arrears

Coal India plans to set up washeries in all new mines

Tech cos bat for the World Cup

Potential for gold to gain $20-25 an ounce

Tellers can be investment consultants

The gravy train labours to a halt...

`Penetration of offshore outsourcing improving'

BCCI, Nimbus await encryption committee report