Tuesday, November 3, 2009

Is the Indian market going down again?

By: Subhadeep Bhattacharjee

For anybody who follows the Indian markets the last two weeks have be very disappointing. The dream run that both the BSE and NSE have had since the declaration of the Lok Sabha results seems to have ended. The index in the both the markets had been strongly rallying in the last seven months almost doubling from the lows that they had touched in March this year. The run was such that many were optimists believed that the sensex would cross the 21000 mark soon.

But the ever since Muhurat Day trading sensex has lost close to 1700-1800 points to come back to the 15K mark. The worrying factor has been that the indexes have close in red after most of the trading sessions in the past two weeks. The FII (foreign institutional investors) have once again been the reason for this recent jolt in the market. It is then no surprise that it was the FIIs which had taken our markets to 21000 and then brought it down crashing.

Reserve Bank of India's decision to keep long-term as well as short-term indicative rates at the current level despite rising inflation and inflationary pressure have also been met with grief in the market. The decision by many banks to increase the rates by January in order to align them with the Reserve Bank's key rates has also dented the hopes of some small investors. All this problems have compounded together to bring the markets against the run of play.

The problem with such a situation is that it might trigger panic selling on the part of the investors. This sort of panic selling proves to be very dangerous for the market as they are not governed by investment logic but more by rumours. We have seen similar situation with the Bombay Stock Exchange had gone down crashing from 21000 to 8000 points in a period of one and a half year. A lot of this was credited to panic selling by many investors.

The recent plunge in the markets might just be a market correction after growing by almost 10-15% per month since March but it can trigger panic which may further harm the market. Preventing investors (primarily small time) from getting into panic selling mode will be a challenge that the financial planners of this country will have to meet.


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