Market Review :What's Behind The Spin ?

In one single day many Indian investors have lost nearly half their life savings….and they’re the lucky ones. Those who invested as early as January this year at the peak of the Indian markets have seen the value of their investment disappear by at least 80%.Many of them-retired professionals had hoped to make the stock market the instrument that would guide them through their old age. But young or old, everyone was a lot poorer by the time the Bombay Stock Exchange closed early in the evening on Friday. That was perhaps the only silver lining—that it was a Friday. The markets are closed over the weekend. It’s as though the markets have been hit by a giant meteorite and put into a dreadful tailspin.

We’ve seen 300 and 400 point falls and shockingly we’ve even become used to them but Friday was different, the Sensex lost over 10% of it’s already depleted value and crashed by a mammoth 1000 + points. During the past month the Sensex has even fallen by 800 points but has recovered the same day .On Friday there seemed to be absolutely no buyers and that’s something the government should be concerned about. As one analyst put it best “If This Continues, We May Not Even Have A Market in Fifteen Days”.

Despite repeated assurances from everyone including the Finance Minister to the RBI Governor to the SEBI Chairman, the markets keep on tanking. We know that the Indian banking system is sound and not in trouble like the US but despite all these assurances why is the Sensex falling? Here are a few reasons:

·         We’re In a Bear Market-It’s a market where people prefer to SELL instead of BUYING. They have speculated that their investment in the market will not be recovered.Therefore, their taking back their money and putting it somewhere else like Gold and Fixed Deposits. Many simply want to hold on to their cash without investing considering it to be even more valuable than gold or oil.

·         FII’s are Selling-Foreign Institutional Investors came to India a few years ago when the market rules were freed up. They bought Indian stocks in huge quantities. Now that we’re in a Bear market, even they are selling. Because of the amount of shares they hold in companies, their act of selling drives the indices down. Even if they are few, the number of shares they hold make them capable of moving the market up or down.

·         Short Sellers Are Violating the Rules-In a bear market, short-selling becomes a reality. Everyone starts to do it because it’s a given that prices will go down. However the Indian stock markets have not been designed to accommodate the degree of short selling were seeing right now. People have therefore flaunted the rules to get away with this.Short-selling is fine but in this environment, it has proven to be a hindrance.

·         The Market’s preparing for a Recession-Investors have realized that the economy is soon going to hit a recession if it hasn’t already. Since the rate of growth is expected to drop, speculation is rife that companies which will power the growth will be worth a lot less as a result of which even their stock value will go down. People want to sell now when the stock values are high as compared to the recession when it will be worth even less.

·         The Loss of Confidence-It’s the single emotion that dictates the will of the market. If investors don’t FEEL they’re ready to put they’re money back into the market, they won’t and that’s how it will be till confidence returns.