Domestic Market Wrap as on June 2008

1. Wild gyrations or meltdown?
- Amar Ranu1
Amid the skittish sentiments around the globe mainly due to interest rates turmoil and
oil prices storming into the stratosphere, the bear-wind cut swathe through almost all
the nations creating a cataclysm in financial system. Developed nations, not to
exclude developing nations have been hit hard by the sudden spurt in oil prices,
already tasted the $145. The turmoil felt in early months of 2008, once discovered as
a promising year, which saw its all time peak have not recovered yet, and the bears
have already junked the overall system forcing all the global central banks to take
fiscal and monetary measures to ease off the burden.
And the recent crisis on the political front has added another feather in the current
meltdown in Indian bourses. Though the UPA has been successful in garnering the
support of SP backed by Shri Amar Singh, the new brand of Indian democracy, it
looks distant for a friendly relationship between them as the history does not support
the facts in case of SP.
India, too, a victim of exacerbated crisis has started showing negative sentiments
among all the sectors. Beleaguered and worn out, BSE’s Sensex and NSE’s NIFTY,
the barometer of Indian performance have already shed more than 40% showing the
net negative return in absolute term in the last one year.
Though to some extent the losses were mitigated in April, but the downward trend
continued amid the high inflation rate. The inflation has already hit its double digit
despite the various measures taken by the central government and RBI under its fiscal
and monetary measures respectively.
Even the Asian markets have also been hammered in the current bloodbath; China has
been witnessing a deluge of foreign funds after it allowed its currency Yuan to
depreciate on the pressure of European and US governments. This might force the
RBI to allow the Rupee to depreciate, as felt by the leading banking heads.
The frontline indices and the sectoral indices ended in negative en bloc. The small-
and mid-cap indices were the hard hit and are yet to recover from the mayhem. The
interest rate sensitive sectors such as Banking and Real Estate have been hit hard.
The valuations of all the stocks has reached a comfortable stage where one can invest
to reap a rich benefit in the short front while the long-term investors are advised to
remain tuned to it Even on the debt front, the return has already appreciated by 150
basis points since March 2008, currently hovering at 9.3-9.6%. Despite the various
hikes in Repo rate and CRR, the inflation is not bottoming showing a new high every
week, currently at 13 year’s high.
In the mutual fund industry, the domestic MF has been witnessed as the net buyer in
the last two quarter. Recently the fund managers have started redeeming its debt
stocks to increase its cash components so as to take the benefits from the hike in yield
in bonds. Investors can park their surplus money in FMP (Fixed Maturity Plans)
where one gets a better return in terms of tax benefits or even the current Liquid Plus
schemes which have so far been under the lens of corporate only.
Thus the investors should take a cautious approach while taking a bet in the current
intermittent market or they can enter through the safer street of mutual fund or adopt a
wait-and-watch strategy.
1
An independent columnist and writes for different websites and magazines on financial domain. He
can be reached at amarranu@yahoo.com.