Indian stock market has been very volatile for more than a year. One day the stock indices rise steeply and on the next day they fall sharply. This has made things difficult for the investors. They are confused and this can be affirmed by the participation of retail investors in the market. The current trends in the markets give signals of unexpected future and high volatility. And this has made investors confused.
The Indian stocks are very volatile. Even the blue-chip stocks are not safe now for investment purpose. For the long term investors the Indian stock market has provided no incentive to invest in the market. Instead the long term investors who invested during the fall of 2008 expecting that they were getting blue chip or value stocks cheaper have not been able to get back the invested capital till now leave any real returns on the investments apart.
The situations and trends of Indian stock markets are such that investing in stocks has just turned out to be gamble. For example if the Sensex of BSE is taken as indicator of the stock market performances in Indian stock market, then it is crystal clear that the stock markets are offering no incentive to invest. The Sensex of Bombay Stock Exchange is in the same range for more than a year. What happens is that on a day or for a week the Sensex and other indices rise by 1000 to 1500 points then in few trading sessions the market is down by 1000 to 1500 to the same levels of last weeks. Again after few weeks on some positive news the same story is repeated. This has been continuing since long and it is expected that the same will continue for even longer time.
The IMF report and many other reports about the European Union and Euro as well as the rest of world are forecasting some troubled future for the world economy. The future of Euro is uncertain. In recent times, the US economy has been showing some signs of recovery in economy but those indicators are still very weak to believe that revival of the US economy is near future goal. Any negative new regarding world economy or the US economy will reverse the trend in all the positive indicators that are now being said to be signs of recovery. All depends on how the Europe deals with the Euro problem and what policies the US government initiates as well as how emerging economies fare in next few quarters.
The world is not same as it was during the times of the Great Depression in 1930s. The world was not an integrated entity then but now it has integrated to huge extent and events in any part of the world are going to have negative impact. These will impact the Indian economy as well besides the domestic issues.
Since August 2011 the Indian rupee has depreciated sharply against all the major currencies in the world because of persistent high inflation in Indian economy and huge fiscal deficits. Also the expected GDP growth will be less than 7% for the current fiscal year of 2011-2012. This is lower than the last year figures. Though the inflation has fallen but this fall in inflation cannot be termed as permanent as the fuel prices may move upwardly in international markets in response to the bans on Iran by the US and Europe and Iran’s expected counter response of not supplying oil to European countries. So any increase in price of oil will increase the inflation rate in economy again. On the other hand this is election year and elections are going on 5 states of India. That means huge increase in government expenditure that will eventually increase the fiscal deficit more. So the overall fiscal conditions are expected to remain bearish. There is huge infrastructural bottleneck in the economy. There are so much structural problems in Indian agricultural sector and government’s responses are lukewarm and unsatisfactory. There has been policy paralysis in New Delhi regarding the future course of economic reforms. This is leading to to slow down the Indian economy. And all these factors make the picture of Indian economy gloomy in comparison to last years.
It is well known fact to everyone that the Indian stock market has huge international institutional investor’s participation and negative trends in the Euro zone and the US will result into outflow of foreign portfolio investments from the Indian stock markets. The recent trends in the portfolio investment prove this as the whenever there are problems in the developed world the portfolio investment had gone to the developed world. The recent fall in industrial growth and weak rupee has resulted into dramatic fall in the portfolio investments in Indian markets including stock markets.
The overall picture of Indian economy as well as the economies of rest of the world is not very positive but if the current trends continue on the same path and Europe is able to figure out some satisfactory solution to the Euro problem, things will start improving across the world. So the stock markets including Indian stock markets will witness some positive changes and will rise. But if things reverse and probability of this negative trend is very high, the stock markets across the world will fare negatively. And in Indian context, the Indian stocks will remain in the same volatile zones as they were in 2011.