With investors dumping stocks like there was no tomorrow, the indices plunged deeper into the red during the last hour of trade, leading to an extremely weak session on the bourses today. While the BSE Sensex edged lower by around 500 points (down 3.1%), NSE Nifty lost in the vicinity of 150 points (down 3.1%). BSE Midcap and Small cap indices weren't spared either, in fact even harsher treatment awaited them, as they cracked nearly 4% and 5% each. Investors were particularly severe with anything related to real estate, metals and infrastructure.
While most Asian markets closed in the negative today, the exception was China, which witnessed significant buying interest. Europe on the other hand, is trading deep in the red currently. The rupee was trading at Rs 47.4 to the dollar at the time of writing.
The reality that they have become too bullish too soon is perhaps dawning on the investors currently. And the cues that they are getting from the real economy are not helping matters either. While the US economy did expand during the quarter gone by, a lot of experts have come to the conclusion that the expansion might soon lose steam if left to its own devices. The fact remains that the US consumers are still not willing to open their purse strings, thus significantly raising the specter of another slowdown across the world.
While the Indian consumer may not be stretched and its economy may be offering prospects of above world average GDP growth rates well into the future, really undervalued opportunities from a near term perspective are getting tougher by the day to identify. Add to this the risk that the central bank's measures to curb inflation could actually end up hurting growth prospects and you understand why the FII community is getting jittery with Indian stocks. However, as we have said countless number of times in the past, if the markets were to have a sharp correction, it will be a good time for long term investors to jump right in and scoop up stocks that are a play on India's long term story and are available cheaply from a long-term perspective and have strong fundamentals.
Among the major losers today were commodity stocks like Hindalco, Sterlite, SAIL and ACC. And not without reason. While some of these companies are a play on both the domestic and international economic growth story, others are just tagged to the India growth story. However, the underlying reason for the weakness in all of them is perhaps the same. And that is macroeconomic uncertainty. With experts once again becoming skeptical of the world GDP growth, worries are rising that the robust projections that lie behind the impressive price run up that these stocks saw in the past few months may not be achievable after all. The fact that these stocks had gone from extremely undervalued to fairly valued also made them susceptible to any negative shocks, an illustration of which is being on display currently.
