Review of indian stock markets & economy - Week ended 4th September 2015

This is my first effort on weekly reviews. Will try to add more details over the coming days.

 

Indian stock markets (based on Nifty) slumped by 4.4% during this week. This is the second time during the current financial year Nifty lost more than 4% during a week. With the current plunge in markets Nifty falls to a low of 7626 in this week which is a 55 week low. 

The index is currently hovering around the 100 week moving average of 7618 which was not tested during the past 2 years. Any fall below this level may see further downward movement in the markets more on sentiments than the economic factors.

The market volatility levels increased by around 12% during the current week compared to the previous one. 

In effect this literally wiped out all the wealth creation which happened in the past 1 year (after the euphoria of electing Bharatiya Janata Party to form a central government with an overwhelming majority).

There may be several reasons for this downfall witnessed in the recent weeks

• Mishandling of the economy by the earlier government - could have been put back on rails by current dispensation
• Melt down of Chinese Economy
• Continuous decline in Industrial production - down 8 out of 15 months (April 2014 - June 2015) which is more than 50% of the time
• Decline in exports for a continuous 5 months during the current financial year
• Fears on US Job data (which for August 2015 stood at around 173,000 less than estimated figures)
• Fears on a probable rate hike by US Fed Reserve by the end of this month

There are some additional worrying factors

The country witnessed a sudden (though) a seasonal increase in prices of Onions which forms a part of the staple food of the country. Not sure whether the import plan of 10,000 metric tonnes through MMTC (a PSU). As per the news reports the tender was floated only in the last week. Though the government promised some change in 48 hours around one week ago there is hardly much reduction in Onion prices. 

There is a news report in Hindu Business Line that the Tomato (another important vegetable used in India after Potato and Onions) prices started going up in Northern India. Hope the government will take necessary steps to arrest the prices of Tomatoes.

The country achieved 69% of the Fiscal deficit target for the whole Financial year 2016 (April 2015 - March 2016) during the period April - July 2015 itself. Unless proper steps are taken there is probability of overshooting the targeted fiscal deficit by the end of the year.

The Quarter on Quarter GDP growth rate declined to 7% from 7.5% during the current quarter (April - June). If this continues further there is a possibility of the country ending with a growth rate of around 6.5% - 6.7%. If this is the expected growth rate on the newly constituted base data, imagine what cold be the growth rate on earlier base data.

I expect that we should tighten our belts for more bumpy ride during the current financial year.