The Indian stock market is a bubble which keeps bursting every few months. From rising to 21000 and then falling to 8000 and then rising again, it thrives on speculation. From North Korea’s relatively low-key attack on South Korea to major problems like recession in the US, Europe and around the world, anything has the power of affecting the Indian stock exchange.
After months of rising on the back of happy sentiments about the economy, steering through the recession and strong FII inflows, the stock market has plunged to its lowest level in five months. It closed on Friday at 18,396 points which is a plunge of about 2600 points since Diwali. That’s a lot in just about 60 days. What is even more scary that investors have lost over 11 lakh crore since Diwali including 3 lakh crore being wiped out in the past three days itself.
So what’s happened suddenly? Where are the green shoots of the economy gone? Why do investors and trader seem worried again? If we analyse, there are two views one can think about.
Runaway inflation has been a big problem for the government. Rising food prices of basic commodities such as vegetables along with petrol, kerosene and even many manufactured items has put great pressure on our growth rate. That’s the reason even IMF has revised India’s expected growth rate to 8-8.5% from a previous 9%.
The cost of borrowing has increased very heavily which has put great pressure on the stocks. Scandals have been the so prevalent in the period of the present government that one may wonder if life without a scandal is possible. On a serious note the hundreds of scandals have caused the exchequer to lose millions of taxpayer’s money.
More than anything this has resulted in losing trust in the economy and thus very high percentage of FII outflows. Then there is also a question of black money which the government is dodging by talking about treaties and not coming right to the point. We had all been very excited to almost cross the hurdle of recession when the European crisis struck and it has taken us the world economy those many steps backward as it had come forward.
The second view about the entire issue is that this is a natural tendency where cooling of the markets happens. The markets in India have been over heated for a while with everything being overly speculated. And with this, the range could be set between 13000 – 15000. That’s probably when the best buys could happen.
Though different people may have different views, even though a lot of money has been lost in the markets over the past couple of months, people know that they can gain double the amount here in lesser time. And till that happens, the enigma of the stock market will continue.
What do you think?