Mumbai:The Bombay Stock Exchange’s benchmark Sensex index hit a record high of 21,206.77 points on 10 January, but followed it up with a sharp correction, losing some 21% to 16,729.94 points by 22 January in eight straight trading sessions.
Since then, the fall has been unremitting. What seemed a “correction” in end-January has turned out to be much worse than that. The bears now hold India’s equity markets in a vice grip, with the Sensex losing some 38.26% since its peak.
Brokerages did not see this coming. Most said in their research reports—released between 21 and 25 January after the sharp fall—that the pain was over and investors should seize the opportunity to buy stocks as India’s growth story was still intact. The reports also strongly recommended stocks investors should buy, with standard disclaimers.
They got it wrong. All of them have since been revising their estimates and outlook on stocks. Edited extracts of what some of the brokerages had said.
Macquarie Research on 23 January
Correction provides an opportunity
As global markets recover following the 75 basis points cut in the Fed funds rate, we think that this creates a sweet spot for India. Even factoring in the risk of a US recession, we think that the worst is over and we maintain our bullish stance.
We think that the Reserve Bank of India (RBI) will cut its reverse repo rate by 25 basis points on 29 January…
The RBI cut will accelerate the fall in interest rates and our top picks to play this are financials and property. ICICI Bank Ltd emerges as a strong idea…(other) top picks to play falling rates are HDFC Ltd, Axis Bank Ltd and DLF Ltd.
We think that the underlying India story remains strong and this correction remains an ideal opportunity to enter for the long term. There is too much noise in the market for us to give a view on the immediate term—this may not be the bottom or the worst that the market has seen in the short term. However, we strongly believe that the correction provides an opportunity from a one-year perspective.
Deutsche Bank on 23 January
Long-term investors should now increase India exposure
We expected 2008 to be a tougher year due to worries over a US-led correction, but were surprised at the ferocity of the recent sell-off. Despite the risk of further overshooting on the downside, rather than panic and go short/underweight at this stage, we think long-term investors should now increase their India exposure…
…Even if the US worsens, only 35% of the Sensex that consist of global cyclicals/IT/pharma could see earnings downgrades... and the remaining 65% of the index should benefit from the strong domestic capex cycle, with upside to growth from cuts in local interest rates and taxes (remember this is a pre-election year and tax receipts have been very strong).