Indian Stock Market Gains; Indian Currency Falls Further
Indian Stock market gained on Monday as there was buying across the board. The stock markets remained most part of the day in positive. Stock markets in emerging economies witnessed a fall after the news of US Federal Reserve planning to reduce stimulus funding after signs of recovery in United States.
After recent reports from some analyst houses that the emerging markets could also give comparable returns with developed markets, stock markets have gained momentum.
The overseas investing companies and hedge funds quickly pulled out funds from emerging markets, mainly from debt instruments, causing a fall in the currency of specific emerging markets. With expectation of higher returns from US markets, the funds are keen on investing in US equities rather than emerging markets.
Additionally, the returns for some of the emerging markets could fall further as the currency declines. Emerging markets will still manage to grow at higher pace than developed markets but valuations are cheaper in developed markets. With hot money going out of emerging markets, investors feel panic and selling was evident across markets. The economy is improving in United States, United Kingdom and some regions across Europe. Japan and China have also expressed positive consumer sentiment and growth in GDP.
However, with emerging market currencies falling against US dollar, some countries are facing massive trouble. India has a high current account deficit. Additionally, the country has very massive import bill due to oil imports. Indian government has taken steps in recent past to increase price of diesel and reduce subsidy on cooking gas. Such measures will reduce the loss of government over energy imports. However, India should think about green alternatives for energy needs. More windmills and solar panels should be installed. Some states in India including Gujarat, Rajasthan and Maharashtra have installed solar panels to reduce their dependence on fossil fuels. However, Indian government needs to take quicker steps in this direction. Additionally, the country should also think of bio diesel as an option as there is vast area under sugarcane cultivation. Indian government has expressed confidence that the current account deficit will be lower in coming weeks. The country has also put higher duty on gold imports to reduce the import bills. At present, India charges 10% duty on import of gold.
With Stock markets ruling around its 200-day DMA, the movement of Indian markets will depend mainly on the news flow from Western economies. Indian companies are performing better but the P/E multiple of some stocks have gone higher than the comfortable zone. Unless the nation solves the problems with its macro-economy, the stock markets will only be depending on the movement of hot money. Indian government has taken some steps to build investor confidence but majority of market leaders feel that the steps taken are "too little and too late".
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