Stock market fall imminent?

​Hyderabad: Have the Indian stock markets entered danger zone? Is a major market crash around the corner? These two questions are now haunting most of the stock market investors – big or small. And the answer to these nagging questions seems to be a big yes as market analysts and keen market observers overwhelmingly feel that a major correction is overdue and it’s likely to happen within a couple of months.

But why the danger bells now? Just read these numbers. BSE Sensex, Indian’s stock market barometer added over 10,000 points in the past three years: from around 20,000 to 31,639 points on Monday.

Added to that, the total market capitalisation of BSE-listed companies went up by a whopping Rs 29 lakh crore to Rs 1,29, 24, 327 crore (Rs 129 lakh cr or $2 trillion) on Monday. The market capitalisation had hit Rs 100 lakh crore on November 28, 2014.

While the stock markets witnessed a stratospheric rise after Gujarat strongman Narendra Modi assumed charge as Prime Minister in mid-2014, the country’s economic growth was not as rosy with GDP growth falling to a three-year low of 7.1 per cent in FY17. Also, the corporates also failed to churn out big profits in the last three years.

It’s true that stock markets never reflect the ground realities of any economy as they are driven by a multitude of factors and triggers. But the gap is wider now and there is no correlation between the stock market growth and current macro-economic indicators.

Besides, the other indicator which reveals that all is not well with the markets is NSE Nifty P/E. The stock price to earnings ratio (P/E) of the companies that constitute NSE Nifty has crossed 25 now. This happened thrice in the past - in early 2000, 2008 and 2010. And on all three occasions, markets had either crashed or experienced a major fall.

The analysts and market observers that The Hans India spoke to felt that a major correction in the stock markets was overdue and it might happen in next couple of months or so.

“A major correction is overdue. We don't know exactly when that will happen. It may happen in August or before. There is also chance that September may witness this correction," an analyst said. Investors should exercise caution before investing in these overleveraged markets. Otherwise, they stand to heavily, the analyst added

There is also a view that Nifty will touch 10,000 levels from the current 9,700 before retreating by about 1,000 points or 10 per cent. And small and midcaps are expected to bear the brunt of the correction. "If the large caps correct by 10 per cent, there will be 20-30 per cent fall in small and midcaps as valuations are very high in these two segments,” said another analyst. Operator-driven stocks are expected to go through far higher damage and may not recover at all.

Sanjiv Bhasin, Executive Vice President- Markets, IIFL, maintained that Nifty might fall to 9,000 level by the end of July itself. “We think we are headed for a correction and 9000 could be the first point and the Nifty could go even slightly lower. But yes, by the end of July, the index will be closer to 9000,” Bhasin told a business daily recently.

However, Satish Kantheti, Joint Managing Director of Hyderabad-based Zen Securities Limited, said that the current rally in the Indian stock markets was driven by global cues. “Globally, stock markets have been rallying for the past three years and the Indian rally is a part of that,” he told The Hans India.

He also felt that valuations in small and midcaps reached very high levels and it was very likely that there would be correction in those segments. “There is scope for some more uptrend in large caps, but valuations in small and mid-caps are very high,” he observed.