With the benchmark BSE Sensex at a seven-month low, a pall of gloom has descended on the Indian equities. The exuberance that was palpable during Diwali, just three months ago, seems to be well behind us. And while it may not yet look like January 2008, the sharp fall has got even the bulls into a huddle. On Thursday, the Sensex lost 129.73 points to close at 17,463.04.
?The extent of the fall has taken everybody by surprise,? says Raamdeo Agrawal, co-founder and joint managing director at Motilal Oswal Financial Services. ?No one had expected the markets would correct so much and fall more than 600 points below the 200 daily moving average.? Besieged by multiple headwinds such as inflationary pressures, rising interest rates, scams and political upheaval, the market has tanked about 15% this year. Add to that the shift in attention of foreign institutional investors from the more-riskier emerging markets like India towards more developed ones.
The overall situation looks bad. Earnings have disappointed and it looks like the GDP numbers at the end of this financial year will disappoint as well,? says Shankar Sharma, vice chairman and joint MD of First Global.
The analyst community seems particularly worried about earnings in FY12. ?Nobody has any clue as to what might play out,? cautions Agrawal. Adds Sharma, ?Valuations are okay but if earnings continue to disappoint then everything will start to look overvalued.? The MSCI Emerging Markets Index ended the month with a 2.7% decline in US dollar terms. According to Mark Mobius, executive chairman, Templeton Emerging Markets Group, concerns that the unrest in Egypt could impact the rest of the Middle East and subsequently derail the global economic recovery led investors to head for the exit.
Despite the gloom, however, pockets of optimism abound. Belying the dire predictions emerging from various brokerages houses, Citigroup analysts, in a recent research report, recommended investors to buy Indian shares, especially ?beaten-down large caps?. Agrawal from Motilal Oswal supports this view: ?This is the right time to buy.?
Samir Arora, a fund manager from Helios Capital, says that at around 14 times 2012 March earnings, Indian equities might be quoting higher than other Bric nations. ?In absolute terms and relative to our own earnings growth, valuations aren?t stretched. Our performance will not be very different from that of other emerging markets and I don?t expect much downside from here on.?
Arora also believes that FIIs are erring in being ?bearish? on the Indian market rather than being ?less bullish?.