India's Market: The Worst May Be Yet To Come

Eddy Elfenbein submits: When the stock markets in Asia got slammed recently, the market in India was particularly hard hit. The major index there, the Sensex [^BSESN], dropped 471 points, which is a fall of 3.66%. The index has now lost 2,400 points in the last two weeks.

This came as a shock to many, but not to observers of CNBC’s "On the Money." Last week, one sharp-eyed commentator said that the problems in India are in many respects, worse than China's.

Over the last four years, the Sensex has risen 400%. But now the economy is overheating, and government is starting to lose control of inflation. Are you ready for the latest plan to fight rising wheat and rice prices? The government has banned futures trading for wheat and rice. Oh dear lord.

India is the second-largest producer of wheat and rice, so if you see the price of naan go up, you’ll know who to blame. It’s as if the government read a history of the Nixon Administration, got to the part about their economic policies and said, “Hey, let’s try that!” The government has raised taxes. The central bank has raised interest rates. The current accounts situation is bad and getting worse. As a proportion of the economy, India’s deficit is twice that of the United States. Plus, the country carries a huge debt. There’s an old phrase that the market “climbs a wall of worry,” but in India, the market has charged up a wall of ignorance.

I admire many things about the Indian economy. I recently profiled Cognizant Technology Solutions (CTSH), which is a New Jersey-based company, but a leading outsourcer to India. The company has had stunning results over the past few years. Coincidentally, Cognizant rang the opening bell from India.

But as far as the Indian stock market goes, I think things will soon get much worse.

Comments

[brij srivas...:]

Sir,read your article with pleasure.I would like to submit that incase indian markets goes down further from here,then what u have left is skeleton stock market.In case of stock market desertion by local investors how long does fund managers spar with each other?Besides all the commercial activity is within the confines of a city called mumbai where everyone worth its salt is known to each other.So,as things stand any worsening of stock market indicies can have a deterimental effect on funds and flows(both in&out).Sudden fit of reversal trend and reversal trend has to stem now or else................go... forbid.

2007 Mar 06 08:50 AM

[Jose Martin1:]

I'd like to differ... just look at the global cues. From a technical point of view, you see the index move in a similar tangent to those in the US's S&P 500 (and elsewhere). From a fundamental point of view, you have a fairly stable growth. Government or no Government... its going to continue unabated. However, I'm against the fantastic mess that Mr. P.C is creating!! Seriously have doubts whether he's reading from ol' books!

2007 Mar 08 07:59 AM

[Ketan Kothari:]

I agree with you mate totally. Today it has gone up by nearly 500 points; but I am finding difficulites to understand reasons behind it. Market is realy overvalued. it is time to reverse positions.

2007 Mar 08 03:56 PM

[brij srivas...:]

Dear ketan,time now to take a position.Markets never become overvalued or undervalued,its due to perception.

2007 Mar 09 12:23 AM