Sensex Records Longest Losing Run Of 2017; Sinks 440 Points

A quick comparison with other markets

In comparison to other emerging markets like Brazil, Russia or Philippines, Indian markets have underperformed. For example, the Brazilian Bovespa is up 4.5 per cent, while the Sensex is down almost 1 per cent on a month-on-month basis.

Another emerging market like Philippines is up 3 per cent over the last one month. Even developed markets have done rather well. The German DAX for example is up by 4.5 per cent in the last one month. The Russian Micex has also done well in the last one month and is up 4.5 per cent.

Blurred economic outlook weighs on markets

Much was expected from the Narendra Modi government. However, GDP for the quarter ending June 30, 2017 came in at a three year low. Private investment has failed to take off, exports have shrunk, GST still has several issues and unemployment continues to worry job seekers.

The rupee has now fallen to a six-month low on sustained dollar outflows from Foreign Portfolio Investors. Check Indian rupee vs other currencies

This might make crude oil costlier, fuelling further inflation into the economy. This is the last thing that investors would want, given that the RBI is unlikely to cut interest rates anytime soon, which is another big negative.

Foreign Portfolio Investors are selling Indian stocks

FPIs are selling Indian stocks like never before. On Sept 22, they net sold in the cash markets to the tune of Rs 1,241.73 crores; on Sept 25th, they dumped stocks worth Rs 1,249.45 crores. In fact, on Sept 26, they once again net sold very aggressively to the tune of almost Rs 2,000 crores.

Some of thees investors continue to worry that economic recovery will take a long time and corporate results are likely to be bad. In fact, Hindustan Unilever recently warned that GST and de-monetization continue to haunt rural markets.

L&T's AM Naik, warned that economic recovery was likely to take at least two more years.

Sharp and furious selling today

The sudden sharp and furious selling today, took markets by surprise. In fact, the last one hour of trading saw basket selling in frontline stocks. Several high quality stocks that have always seen terrific buying support on falls, failed to support the markets.

Among these included the HDFC twins, Reliance Industries, and Bajaj group stocks. The midcap index also saw sharp cuts and ended 2 per cent lower. Some stocks like Reliance Capital and Power Finance saw cuts of 4 per cent each. Siemens was the worst affected from the midcap space dropping a huge 7 per cent in trade.

Thursday is the F&O expiry and if the rupee falls, we could see immense volatility in stocks.

Should you buy now?

Many analysts are warning to stay away from the markets, as corporate earnings are unlikely to recover anytime soon.

There maybe some technical bounce, but, the trend is clearly lower. Indian markets are very expensive at the current levels, based on Sensex trailing p/e of 23.42 times. This is way above the historic p/e of 17 times.

Unless, a serious economic recovery and corporate earnings rebound takes place, it would be risky to buy.