Mumbai: It’s two years since the markets reached a bottom of 8,160. Today the mood on the Street is certainly not of panic, as it was then. Yet, one can smell a whiff of wariness in the air.
Political risks, inflation and consequent rate tightening, rising prices of crude as well as other commodities amid talk of earnings downgrades are not exactly what would whet investors’ appetite in Indian stocks.
On 9 March 2009, after six months of turmoil caused by the crash of Lehman, the markets settled down to their lowest in years. They were about to witness one of their sharpest bull-runs ever, that has till date returned 126%.
Yet, hardly any analyst could call the bottom and even when the bounce-back happened, they remained quite skeptical. It was reminiscent of Ramachandra Guha writing in his magnum opus India After Gandhi how even a decade after independence, many political pundits abroad remained skeptical on whether the nation would be able to survive as one.
On 7 March of that year, Elara Capital Plc had this classic strategy note, where they pointed out that Indian markets were expensive, compared to world markets and hence were headed southwards. This was when Sensex was trading at 8,000 levels!
Of course, Elara Plc was one among the manu to be swayed so much by the momentous turn of events that had swept investors off their feet. The fall had led to a world-wide liquidity crunch and brought down markets and crystal balls were clouded across the world. Indeed, there was a consensus that the bear market would continue for some more time.
This is why, even on 27 March 2009, when the recovery was well under-way, Aditya Narain and Tirthankar Patnaik of Citigroup brushed off the bounce-back as a temporary rally.
India’s bear markets have historically lasted 30 months on average, been longer than regional markets (21-23 months), and longer than India’s bull markets.
Now, the market once again stands at a crucial juncture.
Indian markets would continue to under-perform if oil prices head upwards, said Abhay Laijawala, head of research at Deutsche Equities India (Pvt) Ltd.
The consensus view, echoed by Laijawala seems to be that the upside for Indian markets would be limited in the first half while in the second half, as the developed market trade runs out of steam and Indian valuations start looking good, flows would start picking up.
The trajectory of oil price would indeed be a key determinant of how events pan out in the market and oil is something very few have any clue about. Thankfully, most analysts are willing to admit that it is difficult to predict Middle-East politics that is affecting volatility in crude prices.
All’s well if oil is well, wrote Rajat Rajgarhia of Motilal Oswal Financial Services in a recent strategy note.
Maybe this is because the Middle-Eastern crisis has been a black swan that few could foresee. Maybe, we are learning to be cautious about our views in a world which is getting complicated by the day.
Or perhaps, analysts are taking history lessons from Guha.