Monday, 7 September 2015

What’s Ailing Dalal Street?

Gloom and Doom has descended on Dalal Street which has been hit by the triple whammy of deepening China woes, jitters over the timing of a maiden US interest rate hike since 2006 and a domestic growth slowdown, triggering an exodus of foreign capital from Asia’s third biggest economy.

Let’s have a glance at the dismal performance of Indian stocks, lately which have fallen prey to a global financial market rout amidst fears over a worsening slowdown in China coupled with a looming US interest rate hike. Marking four straight weeks in the red, the Sensex, the second best performer among top markets in 2014, has sank almost 12% since the start of August, crashing to a 15-month low of below 25K, while the rupee too, has bitten the dust, plummeting to a two-year low, falling past the 66 mark vs. the USD as foreign investors exit risky emerging market assets amidst signs of a fast faltering global economic recovery.

China’s decision to devalue the yuan by the most in two decades which fueled fears over a fresh global competitive currency war has sent global stocks in a tailspin with the so-called Black Monday (August 24, 2015) wiping out as much as USD 2.7 trillion from equities worldwide including Rs 7 lakh crore from the Sensex, which recorded its third worst day in history.

As if the China and the US factor wasn't enough, slowing economic growth has exacerbated the domestic market’s woes, prompting a record sell-off of Rs 17,428 crore from Indian stocks by overseas investors in August 2015.

India’s economic growth cooled to 7 per cent in the April-June 2015 quarter from 7.5 per cent in Q4 FY 2015-16 while manufacturing expansion eased in August and growth of the eight core infrastructure sectors hit a three-month low in July, dashing optimism over the India growth story.

Looking ahead, no major respite is in sight for Dalal Street in the near-term with caution set to prevail ahead of the two-day meet of the Fed on September 15-16 where the world’s top central bank may offer some cues over the timing for monetary tightening in the US. Domestically, the focus will be on the July IIP data due on Friday with a slowdown in industrial output growth likely to raise calls for an RBI rate cut on September 29. Investors will also seek progress on key reforms such as GST which has been hit by political roadblocks.

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