Bearish Sentiments Continue to Grip Bourses

The slide in the Indian share markets continue. Though expert opinion is divided on whether the Sensex would test the October lows of 8509 again, there is no denying the fact that the key global indices would continue to decline, in the near term at least. Fundamentals are still shaky. Many major economies of the world have entered into a recession. World’s largest exporter, Germany, is the latest one to enter the list. Severe liquidity crunch has led to a slowdown in demand as a result of which many manufacturing companies have announced temporary shut down of factories not only in India but also across the world. Oil has fallen below $60 due to a drop in demand. Even a cut in crude production by OPEC countries failed to reverse the downslide.

Massive bailout packages have been announced by governments across the world but they have done little to cheer global stock markets. On Thursday, inflation data for the week ended 1 November was announced. Though the sharp decline in inflation numbers was a positive surprise, markets did not react positively to it. After an initial spike, everything just fizzled out. Markets simply failed to sustain at higher levels. This led to immense choppiness throughout the trading session on Friday.

The share market news is really bleak. FIIs have been constantly pulling out funds from stock market in India. Retail investors are shying away from the markets as a result of which volumes have taken a huge hit. Though mutual funds are supporting the markets to a large extent, the basic characteristic of the market has changed. It has become largely a news-flow driven market. Indices spike on the flow of positive news and then again go down to previous levels or probably lower. Needless to say, at what levels will the stock market stabilize, is a million dollar question now.

Amid all this, the worst affected has been the common retail investor whose confidence has been shaken to a large extent. But market analysts insist this is one of the best times to pick up stocks and indulge in some value buying. Many frontline stocks like Hindalco, Tata Motors and Tata Steel are available at attractive valuations. For long term investment purposes, it is the best time to deploy funds in such scrips. But still investors are not ready to loosen their purse strings. Even if they are, they are reluctant to extend their investment horizon. Booking profit at the slightest rise appears to be the latest strategy adopted by all. Everyone seems to be waiting for the environment to recover and for the economic cycle to turn.

The Indian government should take measures to restore confidence in investors. Though it has tried to tackle liquidity crunch by cutting key rates in the recent past, more cuts are required since only government banks have reduced prime lending rates and not the private banks. Moreover, with a fall in inflation, the central bank should not hasten further cut in rates.

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