A Volatile Ride

The Indian stock market is passing through one of the most volatile phases of all times on back of global cues and sell-off in global indices over deepening US recession. It took the BSE Sensex nearly two years to reach 21,000 mark in January this year but in just three quarters it has slipped back to 10,000 mark amid high volatility.

The BSE Sensex has shed more than 60 per cent since January 2008. On numerous occasions India share markets have slumped given the bad news emerging from the global markets. But similarly, there were many moments when the India Sensex gained some lost momentum. Undoubtedly, both fundamentals and sentiments play a key role in performance of the market.

In the long term, fundamentals decide how the stock will perform but for medium and short term, sentiments too have an equal weightage. Although the India growth story is intact, but we are heavily dependent on foreign firms investing in India. In 2008 alone foreign funds have sold $12.6 billion of Indian shares as against $17.4 billion of inflow in 2007. Most the companies that saw FII outflows also witnessed considerable decline in their share value. For the quarter ended September 2008, FIIs turned out to be sellers of BSE-500 stocks. As compared to 6 per cent fall in BSE-500 index during the quarter, Sensex has seen a decline of 4.5 per cent. The ill-effects of foreign investors pulling their investments from India and other emerging markets were quite visible with rising volatility in rupee value.

The Indian currency dropped to an all time low of 49.50 against the dollar on October 23. It is quite likely that rupee may breach 50 mark to the dollar given the bearish market trend, US dollar gaining strength against other currencies.

Amongst the sectoral indices in India share markets, the massive sell-off on October 10 resulted in 10 sectoral indices touching 52 week intra-day low and on the same line real estate and power sinking to all time low. In a bid to boost market sentiment and inject liquidity in the cash-starved system, the RBI and the government promptly took measures last month. Keeping an eye on the market, the RBI has further slashed Cash Reserve Ratio (CRR) to infuse Rs 60,000 crore into the system. The government on its part has showed due seriousness to tide over the liquidity crisis emerging because of global financial turmoil and its cascading effect. Not only the apex bank but central banks across the world too are acting swiftly to cut interest rates to calm panicked markets.

Vritika is an finance investment advisor and provides market news india, income tax return information, updated information on mutual funds in India, latest Banking News in India.