For now, it looks unlikely that India can be immune to any turmoil in global markets, be it related to crude or emerging market currency
Two weeks back and at a Sensex level 2000 points higher, investors were eagerly looking forward to a 5-10 percent correction so that they could start buying.
A good part of that correction (7 percent) has come through, and it is futile trying to guess how much the market will further correct. So far in 2014, this has been the steepest retreat from a new peak—the other pullbacks being short lived—making it even harder to forecast how deep the cut could get.
And whenever there is a sharp fall, a deflationary trend tends to set in, where buyers keep deferring their purchases thinking they can get even lower prices if they wait for a while. And that causes to the correction to intensify, leading to a self-filling prophecy. If it is a bull market, sentiment and prices turnaround quickly, not giving the undecided buyers a second chance.
For now, it looks unlikely that India can be immune to any turmoil in global markets, be it related to crude or emerging market currency. The pace of economic recovery is turning out to be slower and far more uneven than expected. And the same industry captains who were all praise for Narendra Modi and his team are now grumbling that the government is not pushing or reforms hard enough. A combination of all these factors could subdue sentiment for a while, but this could well turn out to be an opportunity for investors who have missed the bus earlier to start accumulating quality stocks with a 12-18 month perspective.
Many feel that the two big themes for 2015 will be the economic recovery gathering steam, and interest rates softening. Already India appears to be on a much stronger wicket than most of its emerging market peers, compared to the situation about a year back. That explains why the rupee was among the last of the emerging market currencies to succumb to the strong dollar.
The outlook over the next 12-18 months appears attractive, though investors may have to put up with some pain in the short term.