Is Indian Stock market on a correction Spree?

Indian stock market has recently been corrected from all-time highs, as investors look to book profits. India’s government has also been rated as one of the best in implementing major reforms and foreign investment has now increased upto 38% y/y. Besides, infrastructure bottlenecks are being removed and policy diverted towards rural area is being corrected. While this is just a summary so far, the article discusses in detail about the correction and reasons for market downfall and holding the horses correctly to once again showing the sign of bouncing back in the world economy.

The stock market has responded well to the new business friendly initiatives of the government and the BSE Sensex touched an all-time high of 30,000 in March. Since that time the market has corrected by around 10%, leading concerns by many people whether the Indian economy can once again grow rapidly. Questioned has been raised on the short term GDP indicators and pointing to the non-material issues such as change in the measurement of GDP. India has massive potential for growth, given the country's low per capita income and huge human capital resources. Bad policy framework and regulations have restrained growth till date.

However, many structural changes are been made by the new government which will help growth over the medium to long term. Investors should keep their eyes wide upon to bank upon opportunity of the 10% correction to make an entry into the Indian stock market. They should look past the temporary short term issues for large long term gains.

Reasons for Market Downfall

  • The industrial growth and earnings performance has not been good so far. This has led many to question whether the new government is being able to execute on its reform agenda.
  • A big technical factor in the stock market decline has been the selling of Indian stocks by large foreign institutional investors (FIIs). These institutions have been huge buyers of India stocks in the last couple of years and a big factor behind the rise in the index levels. A taxation issue of FIIs being subject to Minimum Tax provisions, has caused many of them to lower their exposure in the Indian market
  • The government has been facing a lot of trouble in passing crucial legislation on land reforms, real estate and goods and service tax
  • India imports a large portion of its crude oil and natural gas requirements. This makes the country's current account deficit and currency highly sensitive to crude oil price movements.
  • Inspite of significant downfall due to the correction in the markets, the good thing is that India is holding her horses back and will eventually come up due to its right deeds such as:

  • Foreign investment has increased by 38% and the new government looks promising and has been rated one of the best by a prominent world experts
  • One of the biggest constraints to India's economic development is the lack of infrastructure. The government has announced various investments into India's roads, ports and railways.
  • Government is focusing upon the major issue of sharp increase in wasteful expenditure and improved targeting of subsidies
  • The Indian stock market has seen a correction of 10% from its recent all-time highs. However, given the strong long term growth story of India, the stock market is well positioned to rise to much higher levels.

    An investor can hunt for different opportunities to gain exposure in the Indian stock market. There are a number of ETFs and mutual funds which focus on investing in Indian stocks. Investors can also directly invest in the Indian market, as Indian regulations allow foreign retail investors to directly buy Indian equities.

    The Indian government is living up to its promise of delivering on its reforms agenda. Although people find it slow, however, expecting a faster pace is not realistic given the massive size and complexity of India's political and economic system. Pushing for change is much more difficult in a democratic setup but eventually it will ground its foot well leading to the overall development of the nation. The new political wagon is doing an admirable job in trying to bring reforms without alienating affected groups. Investors should take advantage of this correction to add to their positions

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