Sensex crash: ‘Stick to the course’

The BSE Sensex has witnessed a 23% fall in the past 11 months. However, experts believe that investors should stay put through this period of mayhem while new investors should look at new opportunities to enter the market

BSE Sensex, NSE Nifty
The BSE Sensex and NSE Nifty are likely to open on a flat-to-cautious note on Friday tracking Nifty futures on the Singapore Stock Exchange (SGX Nifty) and weak global cues.(Photo: Reuters)

Over the last four trading sessions the benchmark Sensex at Bombay Stock Exchange has lost 1,607 points or 6.5 per cent. In fact, over the last 11 months since it hit the 30,000 mark in March 2015, the Sensex has fallen over 23 per cent as global weakness weighs heavy over the strength of domestic broader economic fundamentals. Fresh concerns over rising non-performing assets (NPAs) of the public sector banks in India have also dragged investor sentiments down.

Not only have the markets ignored the GDP growth projection of 7.6 per cent for 2015-16 projected by the Central Statistics Office, they have also undermined the benefits of low crude oil prices that are being currently reaped by the Indian economy.

While it puts both existing and new investors in a fix, market experts believe that existing investors should sit tight during this period of market mayhem. Experts also feel that it is a great time for first time investors to enter the markets.

“Investors should not time the market but invest time in the market. While there is no certainty on how markets will move over the next three to six months, existing investors should sit tight and new investors should look to enter as there are good opportunities to invest in the market,” said Raamdeo Agrawal, MD and co-founder Motilal Oswal Financial Services.

Ritesh Jain, CIO, Tata Mutual Fund also believes that India can’t do much about the fall as it is mostly driven by global factors and investors should continue with their investments. “We have not seen any panic selling in mutual funds. I would say that investors should continue with their SIP investments and not be worried too much as the fall in markets is driven by global factors,” he said.

While the current fall is being attributed to a global sell-off by foreign institutional investors on mounting global growth concerns and continued weakness in commodity and oil prices, experts say that growing concern over the stressed assets of public sector banks have also played a role.

With most lenders reporting higher non-performing assets, provisioning and decline in profits for the quarter ended December 2015, bank stocks have taken a beating. Between January 1 and February 11, the Sensex has declined by 12.3 per cent and the BSE banking index has witnessed a 18.3 per cent fall. Some of the large public sector banks have lost much more than the index. State Bank of India and Punjab National Bank have fallen by 32 per cent and 35 per cent, respectively, during this period.

Even though valuations of public sector banks have slipped, Agrawal advises investors not to get into PSBs. “It is true that the bank’s clean-up process is on and it’s a transformational reform. But it is also important to understand that this is the result of government’s management and that will remain there. We have to see how the bank’s management is built for the future so that these things don’t get repeated,” said Agrawal.

Irrespective of the domestic factors it is expected that FIIs will provide direction to the Indian markets based on their perception on global growth. This is because they hold around 40 per cent of the free-float of Indian markets.

So even as the domestic institutions and retail investors hold on to their picks in Indian markets, FIIs  have moved out citing global macro trouble and losses accrued in other commodity-led economies.

In fact in the period between November 2015 and February 2016 the FIIs have sold equities worth a net of Rs 17,318 crore as concerns grew over growth in China and crude oil prices tumbled below $30 per barrel.

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