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August 31, 2009

Set up for a steep fall?

Writing in the Business Standard, Akash Prakash of Amansa Capital points out why, despite the seemingly unbreakable positive run the Indian stock markets have had so far this year, a significant dip is "only a matter of time".
The performance of Chinese equities is also a cause for concern, given that these markets have been leading indicators for global markets over the past 18 months. At one stage last week, they were down 20 per cent. The continued decline of the Baltic dry bulk index, despite the stabilisation of the Chinese equity markets, is also a worrying divergence.

...A combination of factors — cuts in GDP growth rates, rising interest rates and stress in rural India — does not equate with corporate earnings upgrades. Commodity prices have also risen in the last six months, which will offset much of the margin expansion we have seen in corporate India in the last quarter. The market is also not particularly cheap.

Supply of paper is seemingly limitless, and we have just seen one very large IPO have a disappointing listing. Policy traction from the government is still not aggressive enough, and not enough has been accomplished, despite the setting out of clear 100-day goals by many ministries.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in