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The turmoil on Dalal Street seems to be India-specific.
When compared with other benchmark indices, both in the developed and the emerging markets, Indias Sensex and Nifty have slumped six and eight per cent respectively, since June 1.
In contrast, other markets, particularly the developed countries, such as the US, Germany, the UK and Japan, have either moved up or remained flat during the period. However, China’s Shanghai index tumbled 10 per cent — worse than India.
But the BSE Sensex and the NSE index Nifty hide the real picture if one looks into the performance of mid- and small-cap stocks; the BSE Midcap and Smallcap indices crashed 15 and 11 per cent, respectively.
This clearly shows that the fall on Dalal Street is more to do with Indian causes rather than overseas events.
Faltering economic reforms, lack of governance or policy paralysis and allegations of corruption at high levels that exacerbated the country’s economic woes have affected the stock market.
In the currency market, the rupee breached the 62-mark against the dollar for the first time as the measures taken by the Government and the RBI proved ineffective.
Inflation woes
Inflation based on the Wholesale Price Index remains at elevated levels of 5.79 per cent in July against 4.86 per cent in June. It stood at 7.5 per cent in July 2012.
But consumer price index-based inflation declined to 9.64 per cent in July from 9.87 per cent in the previous month.
The index of industrial production for June contracted 2.2 per cent.
The contraction in output was because of a broad-based fall in industrial activity, largely due to weakness in the consumer durables segment.
Corporate financial performance has deteriorated and various measures of profitability and interest cover are even worse than in 2008-09 during the crisis period.
This deterioration came even before the current rate hikes and liquidity tightening measures were introduced by the RBI, said Axis Mutual Fund in a report.
According to Kotak Securities, India’s macro-economic situation will determine the direction the stock market takes over the next few months.
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