Will Indian markets slide further?

Wed, 10 Feb Pre-Open

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The recovery in global markets seem nowhere in sight. Moreover, there are indications that the global recession will be led by China. Recent data suggests that China's factory output is falling at its fastest pace since 2012. Amidst all this gloom, India remains relatively immune and better placed as compared to the other global peers. This is because a number of factors are presently working in favour of the country.

It has been argued that falling crude prices is the sign of a recessionary trend as it points out to falling industrial activity. However, there are a lot of factors that influence oil prices. Currently, the prime reason for low crude prices is an over-supply in the market. Reportedly, oil markets have a surplus of two million barrels per day. This situation is set to get worse once Iran starts exporting oil.

Reportedly, demand has remained flat or has been on an increasing trend. Thus linking low crude prices to recessionary trends does not hold good.

And India imports 80% of its crude oil requirements. Therefore, falling crude prices have lowered the country's import bill. This in turn is likely to give leeway to the government to ramp up its public expenditure as investments from private sector have remained subdued.

Further, lower crude prices have also benefited companies in terms of lower input costs. This is reflected in the ongoing earnings season wherein the sales growth has remained flat but the profits have improved substantially on the back of lower input costs. Thus low oil prices are acting as a boon for India.

If reports are to be believed, then sovereign wealth funds are on a selling spree and are exiting the Indian equity markets. The sole reason for the liquidation is that oil producing nations are facing cash crunch. However, it should be noted that sovereign wealth funds are not the only Foreign Institutional Investors around.

Currently, the world is flooded with cheap money which have kept the bond yields at near zero levels. Countries such as Switzerland and Japan are facing negative bond yields and, bond yields in Europe and US are also near zero levels. If bond yields and deposit rates remain low where will a person invest his/her savings? And India with its stable economic outlook is likely to remain the preferred destination. Thus, FII outflow maybe a problem in the near term. However, investors should not worry much about the same.

We believe global markets are likely to remain volatile, going forward. Indian markets too are likely to be adversely impacted in the medium term. However, long term investors need not be too concerned. Times like these could offer good opportunities to enter good quality stocks at reasonable valuations.

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