Column: Time to be cautiously optimistic
Indian assets have been under a lot of pressure in the last few days. The combination of a rapidly depreciating rupee, monetary tightening by RBI and decelerating growth have triggered a very sharp fall in Indian equities. The Nifty 50 index has declined about 11% in the month since RBIís monetary policy tightening late July.
The recent fall in Nifty masks much deeper cuts in the broader markets. It has been nothing short of a bloodbath in most of the sectoral indicesóbanking, real estate, infrastructure were all down over 20% with individual names falling by as much as 40-50%.
To add insult to injury, several international and domestic brokerages have started downgrading Indian bonds and equities. Earning per share (EPS) estimates are being cut, the GDP baseline growth rates have been revised to between 4% and 5%. One hears of targets on the rupee coming in the range of 70 to a dollar; wild estimates of downsides on the Nifty abound daily on the markets. It is a bear market!
While there is serious pessimism surrounding the economy, it is important to keep in mind that markets usually price-in most publicly available information. To the extent expectations have moved lower, prices move lower as well and there is less room for negative surprises. Looking at the major issues weighing on the minds of institutional investors and assessing their reflection in prices is useful in determining whether or not to buy equities.
Pessimism on growth & rupee
The biggest disappointment in India has been with