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Markets - Taking stock of the damage

Markets - Taking stock of the damage

Markets - Taking stock of the damage
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By Prashant Nair  Oct 5, 2018 6:36:08 AM IST (Updated)

From the all-time highs, the benchmark Nifty is down 10 percent, the Bank Nifty has lost 13 percent.

The stock market is clearly in the throes of a panic. A bunch of factors – rising global oil prices, weakening rupee, fears of interest rate increases, potential contagion due to the IL&FS mess are among the dominating drivers.

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Into this mix, throw in the global picture - the US as the global economic powerhouse, is seeing yields jumping and the dollar rallying. US Federal Reserve chairman Jeremy Powell added fuel to the fire by ticking plenty of hawkish boxes with his comments on Wednesday.
Powell said that he was “very happy” with the economic circumstances and that while the US is a long way from neutral rates, the Fed may go past neutral. Clearly not a great backdrop for emerging markets.
So what has been the damage so far in India? From the all-time highs, the benchmark Nifty is down 10 percent, the Bank Nifty has lost 13 percent, while the Midcap and the Smallcap indices have shaved off 24 percent and 37 percent, respectively. For foreign investors, looking at dollar returns, the pain would be even larger. But the indices themselves do not tell the full picture.
Take a look at the table below. Out of the 37,00 BSE listed stocks we put under the screener, over 60 percent have lost over 40 percent in value from their 52-week highs. Over a quarter of the BSE listed universe has lost over 60 percent in value so far. After Thursday’s steep fall (Nifty ended down 2.3 percent), the numbers would look even worse.
The deterioration of India's macros is largely driven by rising oil prices. Should oil reverse, the pressure on macros will also start to ease. The IL&FS led credit episode is also likely to be brought under control.
India’s big outperformance this year vs other emerging markets (EMs) has also fully reversed – which has led to better valuations. Put all these together, and it is unlikely that the current panic will last for long. But don’t take a thawing in market sentiment, as an all-clear to go all in, with expectations of immediate gratification. With India entering a busy election calendar soon, be ready to tackle volatile markets.
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