It is definitely a grim start to the New Year as far as equity markets are concerned. Some analysts point out it is only a nasty correction rather than the beginning of a bear market. An equity bear market is defined as a market condition where stock prices fall and negative sentiment causes the drop to become self-sustaining. Over the last ten days we have had a confluence of many negative factors like the Chinese stock market crash and sliding oil prices causing the global markets to shudder. China had started to devalue its currency, yuan, and expectation of a currency war has put global stock markets in turmoil. Major oil producers and commodity rich countries have literally been brought to their knees. Therefore, with all these factors, the major correction being seen isn’t surprising where the downside risks are starting to materialise. Even though it seems that we are now a large way through the correction, dangers like further dip in crude oil prices could sink the indices to fresh lows. No wonder the Volatility Index has shot up. The question on most fund managers, analysts and investors’ mind is whether India can come out of all this unscathed. Some feel that the BSE Sensex is headed towards the 22,000 mark due to the mounting stressed asset in the banking system and a slowing economy that will run into serious challenges over the course of next few quarters. The heavy weightage of the banking sector on the index is a key reason for the pressure on the BSE Sensex.
Indian stock markets this week witnessed a bloodbath with major indices like the Sensex and Nifty ending below their crucial 24,500 and 7,450 levels respectively. After trading listless during most part of the day, stocks crashed like a house of cards in the last leg of the session, weighed down by a fall in Asian markets and an expectation of weak domestic corporate Q3 earnings estimates. Barring stocks related to the IT Software sector, selling was brutal and wide-based as none of the sectoral sectors were spared. The rupee, on the other hand, trended down by 37p to close at Rs 67.66 against the US dollar on the back of dollar demand from importers.
Reliance Industries Ltd has been a star performer this year with its stock nearly touching the Rs 1,100 mark. Its large presence in the indices and mutual fund portfolios has indirectly helped the benchmark indices from going down further. Amid concerns, Reliance Industries is expected to report better Q3 earnings next week due to its vertical and horizontal diversification. The upcoming RJIO launch should trigger valuation re-rating for the RIL stock and it merits a Buy with an appreciation of at least 30% for a target of Rs 1,420 in 6-9 months time frame.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.