Monday, August 24, 2015

Rush to cash and a wasted year for Stock Markets

Indian stock markets along with the global markets (China, Hong Kong) returned to where they were a year ago. It is the steepest fall next only to fall during 2008 financial crisis.

Is one more recession on its way? Probably not but will have to wait and see what comes out of Pandora ’s Box (China). It looks more like the currency wars triggering the correction. China has lots weakness than seen on the surface. Its Govt. is throwing hundreds of billions into its stock market and took many other measures like banning short trading but no matter what it does, its stock markets are falling any way.

Who is selling? Where the money is leaving to? Western stock markets are falling hard too. Is anyone taking shelter in commodities? No way, Gold has just finished bleeding and the way oil is falling, it looks like it will become cheaper than water. That leaves bonds and cash. That is what investors are doing now. They are selling off their investments to stay on cash or buy US Treasury.

If there is problem in China, why Indian markets have to see such a sell-off? No retail investor has the answer. If it was an overreaction then markets will make a come-back else get ready to hear something which we are not aware of now. FII’s are selling in both equity and debt markets, so Rupee is hit hard too. 

It has always been like this. Indian markets are shallow. I would like to take the example of Tata Steel. It is a big, well established firm. It is as historical as independent India with a clean management but all these tags did not help its stock price. From 200, it rose to 500 to only come back to 200. The time it took to rise and to fall was approximately the same.

Though none of the metal stocks are doing well, we need to watch out this stock. If it falls too steeply from here, then India’s story would be at risk too.