1. Is India’s stock market headed for another 2008-like crash?

Is India’s stock market headed for another 2008-like crash?

The key Indian indices -- Sensex and Nifty -- have been on a continuous rising streak since the beginning of 2017. We take a look at the factors weighing on Indian stock markets.

By: | Published: September 19, 2017 1:09 PM
The benchmark index of National Stock Exchange – Nifty 50 and Bombay Stock Exchange – Sensex have returned 21-24% so far in this year. (Image: Wikimedia Commons)

The key Indian indices — Sensex and Nifty — have been on a continuous rising streak since the beginning of 2017. So far in 2017, domestic investors have bought stocks worth more than $7.2 billion, compared with foreign portfolio investors (FPIs) who have run up a tab of $6.67 billion. In 2016, FPIs bought stocks worth $2.9 billion while home-grown wholesale investors spent $5.6 billion. The benchmark index of National Stock Exchange – Nifty 50 and Bombay Stock Exchange – Sensex have returned 21-24% so far in this year. The broader Nifty 50 index hit an all-new lifetime high of 10,178.95 points in the early morning trade today.

But these stellar returns may be a sign of depression or a stock market crash like it happened in the year 2008 as the 30-share barometer Sensex tumbled 27% over the month of September nine years back to 9,748.08 points from 13,417.91 points. The net profits for the Nifty set of companies fell around 11% year-on-year in the first quarter of FY 2018 which disappointed the Street. We take a look at the factors weighing on Indian stock markets.

Warning sign!

Indian equities have been rallying since January 2017 even as economic growth had slumped to its weakest since the year 2014 and lower-than-expected corporate earnings in the first quarter of FY 2018. Michael Patra, a member of the Reserve Bank of India’s rate-setting panel, described these conditions as “frothy and bubbly” in the minutes of last month’s meeting. “The combination of high valuations in equity and fixed-income markets, an appreciating currency and the persistence of a liquidity overhang in the money market is a perfect recipe for a financial imbalance,” Michael Patra added.

Despite the earnings decay, the Nifty’s estimated price-earnings ratio is almost two standard deviations above the 10-year mean, Bloomberg reported. This means the valuation of Nifty measured in terms of price-earnings ratio is exceptionally higher than its 10-year long-term average. The last time the ratio was that high, at the start of the global financial crisis in 2008, the gauge had its worst annual decline on record.

Cautious brokerages

Brokerages have been expressing caution the Indian market is overvalued, trading at close to 20 times one-year forward earnings, well above its long-term historical valuations of around 15 times. Moreover, they have also flagged the downwards revisions to earnings estimates. “There is a clear and present risk to the earnings turnaround in FY19 as consumption, which has been the sole driver of growth, will not likely be strong enough due to weak fiscal push and job growth. The capex cycle remains nascent and limited to pockets of infrastructure,” Macquarie wrote in a report.

GDP slowdown

India’s GDP growth disappointed for the second straight quarter, slowing down to a mere 5.7% in April-June and pitting the country behind China on the list of world’s fastest-growing major economies. The 5.7% fiscal first-quarter GDP growth, of an economy desperately trying to recover from the shocking impact of demonetisation, was much lower than the 7.9% seen in the same quarter a year ago. It even slowed down from 6.1% in the preceding quarter.

  1. S
    sonia
    Sep 20, 2017 at 1:34 pm
    Venkaiah Naidu, too was warned. He took no preventive measures. He, like others in power, are interested in perpetually bailing out top businessmen fraudsters who first p er the public and then declare themselves 'bankrupt'.
    Reply
    1. Jayesh Sheth
      Sep 20, 2017 at 1:31 pm
      yes,because the fundamental of the stock echange is going one year forward but as per the per the economy is going the oil price are up,gdp is low drought situation is there due to shortfall of monsoon ,gst effect ,demonat which was not going successful,,govt. spending mid term election and globel situation are very painful. inspite of that market is going up.this is a govt led teji.when fii pull there money the after it bcomes very difficult because at present rupee is strong and exporters position is critical then the position becomes more difficult.so i feel that we can see like any situation like 2008 or above.
      Reply
      1. Ketan Shah
        Sep 19, 2017 at 8:35 pm
        Maybe some more hot air to be filled in the baloon. It will then surely burst eventually .Be ready for a roller coaster ride .
        Reply
        1. Honey Sharma
          Sep 19, 2017 at 5:04 pm
          for a normal person it can look like a crash, but in wave and cycles theory markets behaves like that there can't be a upside rally forever, market need to breath, it will correct, looking at the current rally it will considerably equivalent correction.
          Reply
          1. R
            Raj
            Sep 19, 2017 at 1:43 pm
            This article is one way to do it. Spread hysteria and say 'I said it first'
            Reply
            1. R
              Rama D
              Sep 19, 2017 at 1:36 pm
              There are other indicators too. PE ratio of Nifty is at 26. The previous major crashes of 2000 2008 started at PE of 28. And now PE is raising even with Nifty going down, indicating that the stocks are becoming more pricier. Today's market is completely liquidity driven with a steady flow of SIPs. These SIP investors are lazy and will not look at redemptions till some major crash begins.
              Reply
              1. S
                Sadasivan
                Sep 19, 2017 at 1:32 pm
                Central Banks' nd G20 tactic is to,keep the Stocks up with LIC and EPFO in India and other Plunge Protection Teams in the US etc.BoJ owns bout 75 Per Cent of the ETFs of Japanese Market. Crashing the market will rise the price of Gold.an anathema for the US,Globalists,BIS and the US Federal reserve, THE US Dollar would be in peril. That's why all round the stocks are rising despite huge overvaluation and weak earnings. See India's PSU banking Stocks. Due to NPAs their BV should be negative. Divestment will also be adversely affected with crashed Market.SNB is buying US Blue chip Stocks like anything.
                Reply
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