Talk to market veterans and they would concur with the view, that they have seldom seen such pathetic state of the stock markets.
In fact, the index is at 36,800 points, but, the state of the broader markets is awful. It is not very uncommon to see 400 to 500 stocks hitting 52-week lows every day. The way the broader markets have collapsed it looks like the indices are around the 30,000 levels.
Carnage even in high quality Nifty stocks
In fact, we have seen carnage in several Nifty stocks including the likes of Coal India (down 20 per cent in July alone), Titan Industries (down 21 per cent in July alone), Gail India (17 per cent in July) etc.
The selling has aggravated in August. In fact, the carnage has largely to do with selling by Foreign Portfolio Investors. They net sold in the cash markets to the tune of Rs 16,870 crores in July and now in August (till Aug 7), they have net sold to the tune of Rs 8,452 crores in the cash . If the selling momentum by Foreign Portfolio Investors continues, we might see further pressure in the markets.
Relying on the heavyweights
Just a few heavyweight stocks like HDFC, HDFC Bank, Infosys and TCS have ensured that the indices have not collapsed. Should these stocks have also fallen substantially, the indices would have been telling a different story.
From the broader markets investors have lost heavily. In fact, the midcap index over the last one year has lost 16.8 per cent. Investors, who had been investing through mutual fund SIPs over the last couple of years, have seen dismal returns.
It is unlikely that we will see a swift recovery in the markets anytime soon. Investors with a long-term view in mind, can start accumulating at lower levels. With economic growth very subdued, two things must happen for sentiments to improve:
1) Withdrawal of surcharge tax on the super rich
The government had levied a tax surcharge on the super rich. The problem is that it also became applicable to Foreign Portfolio Investors (FPIs) registered as trusts. This has led to aggressive selling of almost Rs 23,000 crores since the Union Budget day by Foreign Portfolio Investors.
Should FPIs be somehow ring fenced from this surcharge, we would see sharp gains in the markets.
2) Stimulus by the government
The government should look at announcing some form of stimulus to push economic growth. With the fiscal deficit already being under some strain, the prospects of a major stimulus too does not look too bright.
Against this backdrop it is difficult to believe that a stimulus would also go through. All in all, one has to brace for tougher times. Honestly, there is no reason why the broader markets should be falling the way they have.
Those with a 2-3 year time frame, can consider buying on further declines. At the moment, any swift recovery does not seem likely.