Where are the Indian markets headed?

Where are the Indian markets headed? This is one question that I have been getting repeatedly from our subscribers and readers alike for almost like 3 weeks now. Well, to be frank I may not be having an absolute answer but yes, I can probably share my thoughts and observations on this. I still remember an article that I had written somewhere like 10 months back which was titles – “Whenever Indian markets cross 17,700, there can be a prolonged rally”. Ever since that was written (knowingly or unknowingly), the Sensex never crossed 17,700 in a convincing fashion.

One thing that everybody could keenly observe is that there is absolutely no correlation in the markets right now. There have been smaller blocks of markets made up here and there having their own kind of performances. US markets are down by more than 10% from their recent highs, Chinese markets are down by more than 20% from their recent high, Indian markets are down by just 3% and is currently the second best performing market after Indonesia.

Moreover, there seems to be absolute disconnect between the various indices. Indian markets are not probably taking any leads from the Global markets and even within the Indian markets, Sensex is not able to signal a move to the other indices like the Midcap Index and the Small cap index.

The major indices clearly seem to have lost the signaling and the influencing power. So, if you are invested into small caps, there is a higher chance that your stocks don’t really record a fall when the Sensex or the Dow slides. In fact, today with the Sensex going down close to a percent, there would have been at least 30 stocks that hit the upper circuit.

Indian markets have clearly shown resilience to what has been happening around. But, the question is how long it can hold on, if things were to get worse globally. It has been characteristic of the Indian markets that they show resilience during the initial stages, but badly fizzle out during the latter. While Dow and HangSeng peaked out in Oct 2007, Indian markets happened to be resilient for another 3 months. But, what happened next? We continued to record the worse performance.

While that still remains a question, we are also quite unsure if the global markets will go down further. The US markets which looked very week for quite a few weeks is up by 3% today. The Dow even managed to cross the 10,000 mark. However, chartists have unanimously given a call for the Dow to go below 9000 mark in the current trend.

Quite easily, things are not really clear as they were quite a few months back. The second half is probably going to be very tricky. If the Dow happens to go by the way, the chartists claim, there are chances that we may break the 17,000 mark and may go down to 16,600 levels.

On the other hand, while we are just short of our recent highs, a break out seems to be quite tough without the global markets making some kind of remarked pullback. While, this being the case, it’s actually a better idea to be invested into the stocks taking a 6 month horizon from now with cash levels of just 20% or 25%.

$Multibagger Team
Arun@hbjcapital.com