Volatility being witnessed in the stock market is here to stay for some time, both due to domestic as well as global triggers. The Sensex, that essentially defines the mood of the broader economy, is down by about 5% since 8 November when India embarked on the great demonetisation battle to cleanse the rot of black money. The rupee also suffered a similar onslaught and is weaker by over 3% in the same period. However, the falling rupee chinned up IT and pharma stocks on Friday as a weaker rupee helps export oriented sectors, a reason the benchmark index recovered by over 1.5% at Friday close. Market experts say that a good chance of the Federal Reserve hiking interest rates might further weaken the currency of all emerging economies, including the rupee, and India’s strong fundamentals may not lend a helping hand if investors fly out of emerging economies in search of better returns in the dollar economy.

Since the demonetisation decision, Foreign Institutional Investors (FIIs) have taken out over Rs 14,000 crore (over $2 billion) from the Indian market. “This explains the fall in the Sensex and the rupee,” says Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments Pvt. Ltd. “However, strong buying by Domestic Institutional Investors (DIIs) of about Rs 9,500 crore salvaged the situation somewhat.”

“The stock market is like a child who always demands a mouth-watering chocolate to keep his tantrums under check,” says a Mumbai-based fund manager. And therefore, the investors’ class is eagerly waiting for taxation reforms (both on the corporate and income tax front) which the government is expected to announce after 30 December, that is, after the completion of the 50-day period that the Prime Minister has taken to let the dust settle. If relaxations on tax fronts along with other growth-boosting announcements are made, it would be a major sentiment booster for the stock market investors. “This would surely take our market in a bull run for the next three years,” says Sudhanshu. “So it is the best opportunity to buy or enter the market.”

All fund houses along with credit rating agencies are predicting a lower GDP data for India in the coming two quarters, which means that India would create lesser demand for all its consumables due to the ongoing cash crunch in the economy.

So stakeholders are eagerly awaiting the government’s roadmap on how it intends to utilise the huge funds being parked with banks. Besides the domestic factor, the upcoming referendum in Italy (next month) might create some panic in global stocks.


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