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Chinese Market Up 33%, Sensex Down 6%; Why Indian Markets Have Lost Sheen?


In April, the first 25 days have yielded a super return of 17 per cent on the Chinese Shanghai Composite. So far China has delivered a returns of 33 per cent this year.


Chinese Market Up 33%, Sensex Down 6%; Why Indian Markets Have Lost Sheen?
Even as we write the US Nasdaq and the S&P 500 have hit a new lifetime high. Almost every global market is scaling fresh highs including the Taiwan Composite and the Hong Kong's Hang Sang. Indian markets have fallen year to date.

On Jan 1, the Sensex began with the index at 29,182 points. It is now at 27, 432 points. Down a cool 6%, when every other market is rallying. Here are a few reasons why the markets are falling.

Fundamentally overvalued

We have been writing since the last six months that Indian markets are overvalued. Sensex companies are valued at a price to earnings multiple of almost 16-17 times one year forward earnings. This is much higher than almost every emerging market. If earnings do not grow, as has been the case markets are likely to fall. In fact, the earnings season so far has been dismal. HCL Tech, Infosys, Wipro and TCS performed poorly for the quarter ending March 31, 2015.

Expecting the moon from the Modi government

Investors were expecting just too much from the Modi government. We can now increasingly hear industry say that policy measures have not come in fast enough.

In fact, the expectations ran so high from the Narendra Modi government, that if there is no major policy announcement every week, it would be seen as a disappointment.

MAT Issue

The Minimum Alternate Tax Issue has been playing on the minds of Foreign Institutional Investors (FIIs). Notices have already been sent to 68 FIIs to pay Rs 608 crores as tax.

This has been a lingering issue in the last few weeks. FIIs have been consistently selling stocks in the cash market. MAT is the tax that FIIs have to pay for gains in shares made, prior to Finance Minister Arun Jaitley scrapping the tax.


Poor Monsoon Forecast

To compound miseries the poor monsoon forecast has had a bad impact on the markets in the last few days. To add to it, there are worries that unseasonal rains across the country would push up prices of food items, thus driving inflation higher.

All in all, it does not look as a good situation for the markets. It would be a good idea to sell into the markets on every rally.

Story first published: Saturday, April 25, 2015, 8:54 [IST]
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