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Nifty, Sensex, deeply oversold – Monday closing report
Nifty sold off today in one of the lowest volumes. It has to close above 7,600 for a pullback rally 
 
We had mentioned in Friday’s closing report that Nifty, Sensex are within days of a sharp short-term rally and that Nifty will bounce back sharply, around the middle of this week. Negative cues from Asian markets, expectations of a US rate hike, weakening monsoon and a falling rupee eroded investor confidence further on Monday. The major indices in the Indian stock market have lost 1%-2%.
 
 
The US Fed is expected to announce its decision to hike interest rates after a decade or so of easy monetary regime with interest rates pegged at near zero levels during its policy meet scheduled on September 16-17. High interest rates in the US are expected to lead away the foreign portfolio investors (FPIs) from emerging markets like India. It is also expected to dent business margins as access to capital from the US will become expensive.
 
Sector-wise, selling was observed in BSE's healthcare, capital goods, automobile, metal and banking stocks. The S&P BSE healthcare index plunged by 282.88 points, capital goods index receded by 154.99 points, automobile index declined by 139.50 points, metal index lost by 118.85 points and banking index dropped by 92.70 points.
 
Negative cues emanating out of China coupled with bearish equity markets resulted in the rupee falling to its lowest levels against the US dollar in over two years during the intra-day trade on Monday.
 
The Indian currency was trading at 66.83 to a dollar at 4.00 p.m., down 37 paise from its previous close of 66.46 on Friday (4 September 2015). The rupee had touched an intra-day high of 66.85. The rupee had last breached the 66.80-level to a greenback on September 4, 2013.
 
The Indian currency came in for a beating as frantic dollar-buying in China devalued the off-shore yuan and other Asian currencies, including the rupee. The volatility started after reports from China suggested that the central bank there was planning to impose stringent regulations on foreign exchange purchases from October 2015 to curb speculation and volatility.
 
Monday's stock market decline marks a landmark of sorts for Narendra Modi government. The markets have come back to levels they had last seen when Modi went on to take over the reins of State. Is the Modi exuberance over?
 
On 16 May 2014, the general election results were announced sending Modi to 7 Race Course Road, the PM's residence, triggering a bull run which had rarely been seen in Indian stocks.
 
Monday's decline brought that steady rise to the level seen on that fateful day last year, when the BSE Sensex went up to 25,375 before closing at 24,121. Nifty went up to 7,563 and closed at 7,203, echoing the trades done one year and four months later.
 
Other triggers, such as a lowering of monsoon rainfall projections subdued investor confidence. The India Meteorological Department (IMD) lowered its long period average rainfall project from 88% to 81%. The IMD had earlier said that the overall monsoon deficit would stand close to 14%. 
 
The weakening of monsoon might end up having a negative bearing on the Reserve Bank of India (RBI)'s decision on a next phase of rate cuts.
 
Sensex gainers during Monday's trade were HDFC, up 0.64% at Rs.1,149.45, Tata Motors, up 0.23% at Rs.323.60, ONGC, up 0.18% at Rs.226 and Maruti Suzuki, up 0.07% at Rs.4,072.05.
 
Sensex losers were: Axis Bank, down 3.90% at Rs.450.55; Vedanta, down 3.59% at Rs.89.95, ICICI Bank, down 3.34% at Rs.249.25, Hindalco Industries, down 3.05% at Rs.71.60 and Lupin, down 2.96% at Rs.1,804.20.
 
The top gainers and top losers of major indices in the Indian stock markets are given in the table below:
 
 
The closing values of major indices in Asian stock markets are given in the table below:
 
 
Among European indices, the DAX was trading at 10,098.00, up 0.60% and the FTSE 100 was at 6,066.81, up 0.40%.

User

Ignore the bears: It's a great time to 'Buy in India'
At 9,120, nobody could have called the top on the Nifty after a surprise rate cut by the RBI. Upside momentum was too strong and global equities were also trading near or at record highs.
 
Similarly, after breaching and trading well below the crucial psychological and technical level of 7,800, it is difficult to ignore further downside and call a bottom, especially taking into account the global volatility in the financial markets arising out of China and the potential US Fed rate hike. We may test 7,500 or even worse, this selling climax may drag the Nifty to 7,200. 
 
The Indian retail investor has largely been on the sidelines after the nightmare of the 2008-09 crash. At each new high the market made, it was largely the institutional money enjoying the party.
 
The question the retail investor should ask is: Is this a good time to accumulate stocks? Further, should he or she be buying on every major price decline from now as valuations become more reasonable and tend towards the cheaper side? The answer is a compelling and a screaming yes!
 
It is in these times of panic that retail investors should be looking to build a long term portfolio. With a longer term time frame it is a prudent strategy to start and keep accumulating quality stocks given the current downtrend. Many blue-chips are now trading at attractive long term valuations. 
 
This column has long called for further reduction in policy rates. Indian earnings have remained stuck in single digit growth territory for the past three years. Weak revenues are ostensibly to blame, though a closer look indicates top-down issues led by high real interest rates and a negative WPI culminating in lackluster IIP growth are the real culprits according to Barclays. 
 
RBI Governor Raghuram Rajan has been singing his own lonely hawkish song for many months now but surely rate cuts are coming very soon. Real rates are at a two decade high. India is under a serious threat from disinflation as Arvind Subramanian pointed out recently and the investment cycle will only turn with a substantial fall in the cost of capital. Time is running out. Expect 75-100 basis points of easing in the next twelve months.
 
Stalled projects were at Rs 2,586 billion at the end of the December 2013 quarter. By June 2015, the value of stalled projects was down 70 percent to Rs 793 billion. Government capex has taken off. The new investment projects for the past four quarters have totalled Rs 10,566 billion, almost double the number at the end of March 2014 (Rs 5,807 billion). Listening beyond the perma bears and Modi bashers, optimism is still sky high. 
 
Sentiment is crucial to investment decisions and the current leadership has been quite successful in boosting the outlook for the future which is also a critical ingredient to growth. It is visible in FDI flows as well as in stock market multiples which even after this steep fall are right in the middle of historical ranges. Gross FDI inflows rose to $46.6 billion (at all time highs) in the 12 months ended May 2015 (up 24 percent year on year), according to Morgan Stanley. 
 
Regarding government spending, National Highway Authority of India (NHAI) road awards for the first three months of FY16 are exhibiting strong momentum and overall government capex for the fiscal year to date is the highest in the past five years according to Barclays.
 
Barclays estimates suggest the cumulative consumer spend (both retail and corporate) will decline by Rs 666 bn (0.5 percent of GDP) in FY16 (assuming petrol and diesel demand growth at nine percent and six percent respectively), if crude averages $60/bbl this fiscal year. These drivers are likely to spur consumption demand growth.
 
On the global front, the European Central Bank revised its inflation forecasts downwards last week and many are expecting another round of quantitative easing in Europe. This will surely support equities in Europe. A US Fed hike certainly seems unlikely this month even after a solid jobs data release last Friday. 
 
But even if US Federal Reserve head Janet Yellen hikes rates, it is very unlikely the US markets will witness the kind of capitulation they did a couple of weeks ago. Yellen will be undertaking the loosest monetary tightening in the history of monetary policy and there is absolutely no reason or evidence that a September hike will be followed by another in December. 
 
China is still a big risk but the past few weeks have given markets enough time to factor in the implications of the Yuan devaluation. Further volatility in China may not be as painful going ahead.
 
It is true that India's macro fundamentals are relatively solid as compared to much of the developed and emerging markets. However, the key point to remember is that while economies like India can decouple and sail through troubled waters as the global economy faces headwinds, global markets cannot do so easily. 
 
Serious money has always been made being long. Stay optimistic and believe in the India story. Keep faith and patience in the 15 month old NDA government. 
 
It’s time to Buy in India. 

User

COMMENTS

Sudharshan Katipally

2 years ago

Is this also moneylife's view on the current market?

HK Krish

2 years ago

Very disappointing the Monelife chose to reproduce this article in their website while the stock markets are capitulating and searching for the bottom. This damages your credibility, please do not post such articles blidly without going over the contents.

Adarsh Dogra

2 years ago

I'm slightly confused about this article considering the following points and not sure what message to pick from it:

The stock letters (for the last few months) have been suggesting the market is grossly overvalued and not as attractive to go for fresh buy though there are recommendations still being made.

There was a recent article detailing the market conditions after massive selling by FIIs in a day and month, which translates in to market troubles.

Best

Sachin Bhutada

2 years ago

Who is the author of the article?

REPLY

MDT

In Reply to Sachin Bhutada 2 years ago

This is a report from IANS and not an article by Moneylife.

subramanian dharmarajan

In Reply to Sachin Bhutada 2 years ago

same question here..is this a news report or moneylife article

MDT

In Reply to subramanian dharmarajan 2 years ago

This is a report from IANS and not an article by Moneylife.

Sudhakar Ojha

In Reply to MDT 2 years ago

What is Moneylife view on this IANS report?

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