Jatinder’s World!

I have some theory on why Indian stock markets are down. However I don’t have a crystal ball to predict when the Indian stock markets will recover. If anybody says that he can tell precisely when the markets will recover, he is either fooling himself or others.

Indian shares fell to end the March quarter down 22.9 per cent, their biggest quarterly fall since the June 1992 quarter. Here are some of the reasons for Indian stock markets to be down sharply:

1.      Surging inflation and signs of an economic slowdown is scaring off investors. Steep rise in inflation for the second straight week above the tolerance level of the central bank was a cause of concern. It’s difficult to see much upside with inflation at a 13-month high. So we can see more correction in the market. Inflation is the biggest problem right now, and with the economy slowing down there will be a pressure on margins of corporate that will lead to an earnings downgrade. I think Indian government is more interested in controlling inflation and would prefer it over arresting a slowing growth.

2.      The possibility of the Reserve Bank of India raising rates or increasing the cash reserve ratio is also bad for investor’s sentiment.

3.      Fears of more write downs by top US financial services firms. Banking stocks in India are worse performers and will continue to perform badly in days ahead. Financial stocks were hit hard, hurt by persistent concerns of a global credit

4.      Information Technology stocks are also performing badly. IT stocks fell on worries about the health of the US economy. Indian IT firms depend on the US clients for a major share of their revenues. Also week US dollar is hurting Indian IT exports.

5.      Market analysts have mainly attributed recent fall to reports that the Institute of Chartered Accountants of India has instructed companies to disclose all losses on derivative, which led to the fears that earnings of companies may decline. But I think in the long term this will be good for the Indian market.

Some good news:

1.      I think Indian markets may be over reacting due to U.S. woes. India has good economy and fundamentals so markets should eventually be back on track. No one knows when though.

2.      It is great time to invest in commodities like Gold and Silver. Since Gold is already priced high, I will rather invest in silver at this time. If you invest in silver today, you will be happy you took my advice few months from now.

It was clear to me that Indian financial stocks will perform poorly after US financial and liquidity crisis. My theory has proved right and we can see the results in Indian Financial stocks. I also knew Indian IT sector will hit badly with week US dollar, and we can see that today.