Banking, FMCG, Infrastructure stocks saw a huge slide and this time bell weather stocks like HDFC and HDFC bank were also not spared. To compound the misery was FMCG, led by HUL, which also put pressure on the Nifty.
The only stocks where investors ran for shelter were the IT and Pharma stocks. The question now is:
will there be a rally? For long our markets have survived on liquidity. Fundamentals of the Indian markets are poor. The country's twin deficits are worrying, while the growth rate and elevated CPI inflation continues to remain a cause for concern.
The Sensex forward P/E multiples are high when compared to peers in Asia, which makes our markets look relatively expensive. To add to the misery the RBI has ensured that interest rates go up and a few banks have hiked their base rate and deposit rates,
Against this backdrop there is scope for Indian markets to fall further. With elections slated in the next few months, policy inertia is likely to set in. "Band-Aid" measures to support the rupee are not likely to work and liberalising FDI is more of a long term measure. As we write the rupee has closed at a new historic low, complicating matters for the economy even further.
The markets are likely to fall further, no matter how many times government officials comes on television speaking of the endless reforms undertaken. If reforms were initiated 3 years back, without fear of coalition partners, the economy may have been in better shape. The only thing we can pray if that foreign rating agencies do not downgrade India's sovereign rating.