Tight turns, steep slopes, sudden highs and inversions are characteristics of a roller coaster. Those have also been the hallmarks of the Indian stock markets for close to three months. From hitting a three-year low on March 23 with a 13 per cent fall to bouncing back just three days later, it has shown deep falls and sharp recoveries time and again.
But don’t get fooled by that. There may be a storm brewing beneath the calm. After all, this sharp recovery is built on weak corporate and economic fundamentals and huge uncertainty in the immediate future.
With India’s economy projected to shrink 6.8 per cent in FY21, according to SBI Ecowrap (it grew slowest in 11 years at 3.1 per cent in the March quarter), early bird corporate results showing sharply shrinking top lines and bottom lines, stock markets are set to lose the only basis on which they have been rallying — the hope of a ‘V’ shaped recovery.
The optimism is dimmed further by rising coronavirus cases in India and fear of a second wave in the US, the world’s largest economy, which has led to a selloff in S&P 500, the global barometer for equity markets, as well.
Add to this the lockdown-triggered defaults feared in housing, credit card, personal and corporate loans, their impact on non-performing assets (NPAs) of banks and non-banking finance companies (NBFCs), and the stock market rally appears to be on a very, very weak wicket. “The economy is in shock. All indicators are showing that the situation is very bad. Fundamentals of the stock market story are very weak,” says Dhananjay Sinha, Head of Research and Equity Strategist, Systematix Group.
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