The Hindu Business Line : Benchmarks yet to get signs of bottoming out

Disappointed investors look at the plummeting BSE Sensex in Mumbai last Monday. Despite recent correction, investors are clueless whether the market has bottomed out or not. –

Dalal Street appears more or less reconciled to the idea that the Bombay Stock Exchange’s Senex is yet to find its interim bottom. According to technical experts, it could be found anywhere between 12,000 and 14,000 points. However, none is sure about the timing.

In the short-term, this means each investor is on his own in terms of taking a personal call on the market. (As an investor, John Maynard Keynes was nearly wiped out after the 1929 stock market crash!)

At the macro level, this is likely to cause a drift with a downward bias this week. The negative news or signals are likely to be factored in more quickly than any positive that arrives on the horizon.

The corporate results for FY-2008 are still a few weeks away but the profit expectations have already been toned down substantially. The expected earnings for FY-2009 are also being discounted aggressively.

According to certain market observers, the Sensex, in the short-term may witness further stock-specific discounts on expected earnings. For example, the growing apprehension is that Reliance Industries, a benchmark heavyweight with a current weight of 15.27 per cent, may not reap the level of benefit of inventory gains on account of sharp rise in crude oil prices in FY-2009 as in FY-2008. If there were a consensus of sorts on downward revision of earning expectation on this score, then the corresponding effect on the Sensex would obviously be there, at least in the short-term.

Bad times

But these are elements of micro detail, which keep on fluctuating in a given time. Equity market’s current tentativeness stems from deep-rooted sense of uncertainty on the earnings prospects of the corporations in the short-to one-year period.

Has the perception of the economic growth in the next four quarters has suddenly gone fuzzy? Equity Street is not as confident about the growth numbers as it was even at the end of the last quarter.

The India growth story, which was largely scripted by the surging globalised financial markets in the past four years or so, does seem to loose much of its sparkle in the backdrop of convulsions in the same markets.

Sentimentally, in a bad time like this when financial market problems tend to influence the underlying real economy, equity market valuations can undergo drastic changes.

This in turn restricts capital raising ability as well as raises cost of it.

Even the non-leveraged liquidity now stands frozen. For instance, the institutional investors, such as mutual funds, are waiting on the sidelines with an estimated cash bag of Rs 20,000 crore. Everybody is now trying find out when the worst would be over.

The current global financial market crisis could snowball into the biggest since Keynes helped organise the global financial system.

The “India story” (and for that matter the great BRIC story) too may see dramatic twists and turns in the plots and sub-plots in the next 12 months or so (a few appear to see beyond that period). The general mindset seems to be that in the long-term, we are all dead.

(Responses may be sent to jayanta_mallick@thehindu.co.in)

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