Despite the weakness seen in the stock market, we are witnessing the benefits of strong policy measures implemented in previous quarters like demonetization and the goods and service tax with the fastest growing major economy in the world.  GDP growth is an amazing 7.7%.  The important PMI index has now expanded 11 months in a row.

So why is the market so weak? High crude prices continue to hurt India. Trade talks is damaging from a physiological point of view although India is not really affected given its minimal trade with the US. Foreigners have been net sellers this year. Looking at the index in local terms, the companies making up 90% of the market cap are trading around their 52 week low, small and mid-cap stocks have lost around 20% this year while the currency is down almost 7% against the dollar.

Domestic Indian mutual funds have subscribed for $10 bn this year as they witness the strong domestic economy, improving corporate earnings and balance sheets.  This in contrast to foreigners who have taken out $1 bn of their Indian investments this year.

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