Indian Stock Market Plunge most in last 16 Years; Expect further fall next week :-(

Wasn't it a great fall, aren't we lucky to see such type of market fall in our lifetime, once in 16 years....hmm. Soon we will see something once in 30 years, 60 years or may be 100 years. All the events seems like artificial, looks like whole world is expecting market to fall and yes, it is falling but stocks markets are in famous to prove you wrong!!! What next on monday? Margin pressure, panic selling, again circuit down sometime next week, so and so.

India's stock market fell 11% (most since 1992) as risks of global credit crisis and US recession worsened; Markets down by over 58.5% ytd on Oct 24 from Jan-08 peak making it one of the worst performing markets among Asia, BRICs and EMs.

FIIs have sold over $12.2bn ytd by Oct 24 (after $17 bn investment in 2007), their share in BSE-500 Companies (which a/c for a large share in market cap) has also declined; capital outflows also causing rupee depreciation (-26.7% ytd), depletion of forex reserves (-$41bn from May-peak)

Stock market regulator: FIIs lending and borrowing overseas by using offshore derivatives (P-notes) for short selling in the market

Turmoil in money markets recently due to global contagion caused credit tightening and spike in short-term interest rates, and sell-off by foreign and even domestic mutual funds; MFs have sold $229mn in equity markets in Oct

Further risks ahead: investor sentiment will continue to trend down amid global risk aversion, weakening domestic growth prospects (slowing domestic demand amid inflation, monetary tightening, liquidity squeeze); lower corporate earnings and dividends forecast (high lending rates, production costs, slowing industrial activity); impact of global slowdown and liquidity crunch (IT exports, capital raising by firms to fund expansion plans)

Energy stocks (losses of oil companies), real estate (slowing capital inflows, housing correction), auto (input oil prices), banking (monetary tightening, defaults), tech (slowing IT exports) and finance along with retail investors have taken a hit

Valuations has come down to 1/3 as P/E ratios are down from a high of 28 in early 2008 to ~11 on Oct 24th which is lowest for in the history of Indian stock market but are still considered expensive relative to other markets.

- JK, Equity Research Analysts.