Home / Opinion / Online-views /  Inflation, oil help bears get firmer grip

Mumbai: After a bull run that has nearly lasted five years and saw the benchmark Sensex equity index zooming from 2,924.03 points in April 2003 to 21,206.77 in January this year, the Indian stock market is in a firm bear grip.

The Bombay Stock Exchange’s bellwether index slumped 4.3%, or 619 points, on Friday to breach the 14,000 level and closed at 13,802.22, triggered by another sharp rise in crude oil prices, which shot up to $142 (Rs6,077) a barrel, and India’s accelerating inflation. At the National Stock Exchange, the broader 50-stock Nifty index went down 4.15%, or 179.20 points, to 4136.65.

774e759a-445c-11dd-96a7-000b5dabf613.flvEquity brokers and fund managers on Dalal Street are no longer talking about corrections. Most of them are convinced that the market is indeed in a bear grip and fear the Sensex can slid from here to 12,000 or even lower and, that it will take time to rebound.

“This is not a correction, it’s a deep bear market," said Raamdeo Agrawal, joint managing director of publicly traded domestic retail brokerage firm Motilal Oswal Financial Services Ltd.

“All symptoms points to a prolonged bear market," said the head of institutional desk at a large foreign brokerage, who did not want to be named. “By its academic definition, we are amid a bear market for the past few months."

A bear market, by definition, prevails when stock prices continue to fall, after a downturn of about 15-20% or more in multiple indices, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is a correction.

Both the Sensex and the Nifty are down close to 35% from their January peaks, having collectively shaved off Rs29.46 trillion worth of investors’ wealth.

According to fund managers, company fundamentals are giving way to macro worries, especially on oil prices and inflation.

See: crude shock

“The headwinds are so strong that nobody is looking at fundamentals anymore," says Puneet Nanda, who manages Rs20,000 crore in Indian equities as the chief investment officer of ICICI Prudential Life Insurance Co. Ltd.

In the next three-four months, the Sensex could fall another 10-15% from current levels, he added.

However, historically, markets bottom out before the flow of bad news comes to an end, Nanda noted.

Christopher Wood, chief equity strategist for CLSA Asia Pacific, one of the largest brokerage firms in the region, said that “further rise in the oil price will continue to be particularly bad news for India" and that Sensex at 12,000 cannot be ruled out in the current circumstances.

However, a decline to that level, according to Wood, is a “massive long-term buying opportunity in India and the rest of Asia."

The Sensex was the second biggest loser in Asian markets on Friday, behind the Chinese index, which lost 5.29%, bringing total declines on the Shanghai index this year to about 48%.

India and China are now among the worst performing global markets this year, a dramatic turnaround in their individual fortunes from previous bull years.

Investors are so scared that “nobody dares to put a hand in his pocket anymore," said Harjeet Singh Sethi, chief executive of domestic brokerage company Almondz Global Securities Ltd.

Foreign institutional investors, the largest investor class in the domestic markets, have pulled out $6.25 billion from Indian stocks this year so far, after betting $17.36 billion last year on the growth of Indian companies.

A recent research report from the institutional desk of India Infoline Ltd had said that foreign funds accumulating short positions on single stock derivatives had gone up so high that there was a shortage of participatory notes inventory available for such trades.

Going short means selling stocks which an investor does not own on the assumption that the prices will fall.

Ashwin Ramarathinam and Mobis Philipose contributed to this story.

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