Markets in Bear Grip: Should India Panic About Further Downturn?

With Indian stocks firmly in bear market territory, experts and brokerages seem to suggest more panic selling.

The global market meltdown has triggered volatility and panic-selling among Indian investors and traders. Those who have been following past trends of the Sensex may have reasons to brace for tougher times ahead.

In 2016 so far, the Sensex’s performance has been the worst in five years with the index dropping 7.5 percent since 1 January. This is also the third-worst start for Indian equities in the past 18 years. With Indian stocks firmly in bear market territory, experts and brokerages seem to suggest that we may see more panic-selling in the near-term.

Tail Risks Not Priced in; Valuations Attractive

Certainly, investors have been disappointed with earnings growth in India, and this is probably causing equities to give up their valuations (stock prices) for most of the past year, not helped by the growth scare in the world at large and its concomitant damage to global share prices. We are not making the case for a tail risk situation such as a recession or a crisis, but it is quite evident from the state of valuations (which are mostly in the top half of their historical range) that the market is also not pricing in such outcomes. However, going by past trends, bargain hunters stand a good chance of making money over the next one year. The correction in absolute share prices, which began in March 2015, now leaves valuations in a zone where there is solid upside in the coming 12 months, if history is a guide.

— Ridham Desai, MD, Morgan Stanley in a note

India Boom Not Over Yet

The ongoing meltdown in the market is a great opportunity to buy some good businesses. Advise investors to take a longer-term perspective while buying at current levels. Nothing in the economy suggests that the boom which started in 2013 is over. India is heading into a period of lower interest rates and that will add heft to economic growth and corporate earnings.

— Ramesh Damani, Value Investor to CNBC-TV18

May See 5-7 Percent Downside

Stock markets could see another 5-7 percent correction due earnings cuts in the ongoing results season, and de-rating of certain expensive stocks. Domestic industrial recovery is still distant and global commodity prices are very weak, this poses downside risks to ever-declining earnings estimates in certain sectors.

— Sanjeev Prasad, Senior Executive Director, Kotak Institutional Equities to Economic Times

Don’t Think India is Falling Apart

My central case is that the markets are oversold and over the next few days, they should start to stabilise and hopefully recover moderately from here. If that happens, then I think midcap sell-off pressure should ease, but you could still see some more panic, but we are seeing green shoots in the Indian economy. And as long as global economy is not falling apart, the green shoots should cause this sell-off to be somewhat short-lived.

I don’t think the economic underpinnings of India are anything to get panicked about although, obviously if this quarter’s earnings like the last couple of quarters has not been anything to ride home about but I don’t think it is a falling apart by any stretch.

— Arvind Sanger, Geosphere Capital to CNBC-TV18

Mid & Small Caps May be Hit Hard

We see downside risk for Nifty trading around 7,000-7,300 levels as institutional flows are on decline, while price earnings ratios continue to remain expensive in the absence of earnings growth. The recent decline in domestic institutional flows along with correction in multiples for benchmark indices portend risk for illiquid mid-cap and small-cap stocks.

— Dhananjay Sinha, Head of Institutional Research, Emkay Global Financial Services to Economic Times

Indian Fundamentals Intact

The underlying fundamentals do not justify the negative reaction we have seen in the Indian markets. What has changed post 1 December, is that fear has taken over fundamentals. Fear about China slowdown, currency and policy mistakes in China and fall in oil prices are making investors nervous. At some point, fundamentals will reassert themselves. If we see some positive data points out of US and Europe, markets will stabilise.

— John Praveen, Chief Investment Officer, Pramerica International Investments to Economic Times