Still In The Bear Hug

To say that the Indian markets will turn the corner any day and regain their previous boom levels will be a mistake. There is no evidence to suggest that the bad times are over. Indications in fact point that what we are seeing now in the economy will last for a few more months at least. The movements of the Sensex and the Nifty are merely reflections of our own economy and sheds crucial insight into the markets and economies of not only India but the world.

The first important point to be considered is the behavior of crude oil prices. Our markets have been able to recover from the lows of a few months ago simply because governments have wielded tight policies to control the oil markets. This is however an ongoing battle between those who make money in oil and those who don’t. Speculation had driven the price of oil to lifetime highs till a few months ago.

An important reason why oil is now priced between the 110 -120 dollars a barrel range is because economies have managed to curb speculation in the oil markets. It’s also because the supply of oil has increased significantly in the past few months. It is now up to oil producers to continue the same supply at the same price without creating a significant oversupply which will once again cause the speculative aspect to return.

It’s perhaps for this reason that Goldman Sachs have said that oil will in all probability hit $150 a barrel by the year end.

The US markets have been dealing with the uncertainty over oil prices along with a number of problems including the pain in their housing markets. In addition the political uncertainty with a presidential election coming up, a costly never ending war in Iraq and the unexpected threat of inflation. Inflation is however a problem many economies are dealing with.

The impact of all this on India has been somewhat contained and it’s this that should satisfy the investor the most because barring crude and inflation we have been insulated. There have been days when the American indices have dropped 200+ points but good buying has still continued the next day on the Sensex. But, to say that the US market has absolutely no impact would be a wrong statement.

It’s better to say that the local economy has shown an ability to minimize the damages of sharp drops in the US if not in a day then definitely over a weekly period. The Sensex has traded in the 14,000 range. Even a few weeks ago people had predicted that indices in India like the Sensex would fall below the 10,000 range at this time. This as we know has not yet happened.

The prices of stocks themselves have not surged dramatically. Value stocks have been gaining in market value very very slowly and steadily. These are the stocks to watch out for because shares that surge and fall dramatically are victims of speculative intra-day movements and in the long run will cause the investor a lot of harm.

For now the markets are only looking to hold on.