India Investors Best Off Sitting on the Sidelines for Now

With a firm bear hug, India's Sensex doesn't have the famous decoupling theory on its side. Since January of this year, Indian equity markets served the most unappetizing of dishes, but after China. While the Kospi, HangSeng, and others also plummeted, but the fall of Chinese and Indian markets have taken the largest body-count with them.

It is but surprising to note that Sensex PE levels rose from around 23 in September of last year to around 28 in January. But the retribution was swift and it is presently lurching at around 21 levels.

It is also a disappointment with 2 out of every 3 IPOs trading weakly. This just affirms falling investor confidence, which is of course bad. But the severity of the situation comes into the fore when we notice that even IPOs introduced even 18 months back are trading at a thin premium. This just speaks volumes towards falling investor confidence.

Moving into some hard technicals, the story takes a new turn.

click to enlarge

Figure 1: Sensex is trading 29% below the historic highs of January and has breached 200 DMA levels

The Sensex presently is trading at around 15K levels, but the fall of the last week in May has affirmed the losses. The Sensex is trading lower than both its 50 DMA and 200 DMA, which signifies a mid-term or long-term bullish or bearish phase. The Sensex breaching both of these technical signals reiterates that investors in India have to wait and watch, for inherently the Indian stock market is a beautiful market with plenty of companies with good fundamentals in the fray. [For some detailed technicals see this link.]

Even trend analysis through TRIX indicators shows the Sensex never really recovered from the southward movement is started on early this year. Presently TRIX is negative heading southwards.

Figure 2: TRIX[20] indicator never really recovered from its previous highs but has given out false positives

The Indian market is an emerging market, and a market offering huge potential gains. This fall in the PE of the market has done a lot of long term good, for investing on a fizzling asset is never a wise thing to do. But as for now, the only consensus looks like wait, watch, think and act.

Comments

[kapsrules]

"The Indian market is an emerging market, and a market offering huge potential gains. This fall in the PE of the market has done a lot of long term good, for investing on a fizzling asset is never a wise thing to do. But as for now, the only consensus looks like wait, watch, think and act."

The big question is till when? with Credit suisse estimating sensex at 13K level and UBS saying a fall of 10% is expected in the near term..and lots of FIIs are cashing out of the market..this wait is going to be a really long and painful one!!

[justbrowsing]

whats interesting is this:
if the market falls, the rupee falls,
if the rupee falls, the $ rises,
if the $ rises, indian offshoring firms all benefit.
so either way, there is an equilibrium and not
an eternal downward slide..

[hownow]

No,No..Soham!!!

You cannot be changing your tune now..esp since you were advocating "long on economy" in april with your faulty data,

seekingalpha.com/artic...

when we should have been listening to Ludus here

indiaplay.blogspot.com...

[Soham Das]

Haha...

@hownow... of course I am not changing my tunes now... I am still long on Indian economy and bullish on it... but this report is just a short term report... wait till August [preferably, citation needed] to see some movement...

And the April one was a socio economic take... mentioned in comments as well, which forecasts long term prospects, not the short term investing scenes.. which matches with my present take as well [both long]... [ :) Faulty data, tell me about it ;) ]

Cant you see, all the previous three articles deal with LONG investments?

[User 210694]

The US FED exchanged Treasury Bills for Sub Prime Paper. Expansion of Credit was fueled into Oil Futures to recover the losses so far written down. Oil will be going to 150$ and there will not be a shift in engine of global growth till alternatives are found or china and india consume more than US.. ( which is a long way off ).

So , USD will drop , IT will survive , Gold will go to the moon.
India has to reduce subsidies to be economically vibrant and that can only be possible with increased crude prices. So in a way , we are getting forced into making the right decisions.( not populist ones ).

In short , we are between the devil and deep sea and I hope the po;iticians know which side of their bread is buttered...

[smaniyar]

With national elections looming and inflation at 11%, BSE could touch 12000-13000 which would be right time to get back into market. After elections, market can resume its upward trend and could be above 20K by 2010

[Coquitrader]

This downward movement was predictable, I just bought a good size stake in IFN at 6.46 US, and am not panicking. I see the Indian economy exploding sooner than later. I'm looking towards November when I see some strong forward movement emerging based just on their infrastructure needs- which has no choice but to grow bigger faster.

[Coquitrader]

This downturn was expected and I just bought a sizable stake in IFN at 6.46US and am not panicking. The Indian economy, just based on its infrastructure needs, has no choice but to grow big and faster. You'll see strong forward movement by this November- regardless of where oil prices will be. China is another matter; as they continue to depend too much on the US economy.