The Indian stock market, which is swinging to the US sub-prime woes, is relatively insulated to the defaults in the US credit markets,
Market experts see interest in Indian equities given the strong economic growth, robust earnings and rising domestic consumption.
They say India has a fundamentally strong growth story and fewer risk factors compared to economies such as China. In fact, Prudential Asset Management has moved up its India rating from underweight to neutral. "We may even go overweight on India depending on how significantly other markets underperform," said Guy Strapp, Regional Head of Investment Management Asia, Prudential Asset Management.
But US sub-prime defaults have triggered a selloff in domestic market by global investors. FIIs have been net sellers at over Rs 4,000 crore (Rs 40 billion) this month, and its impact is very dramatic on the benchmark index.
Consider the numbers: On July 27, the Sensex tanked by 542 points. A day after the monetary policy review (August 2), the benchmark index suffered the third biggest fall of 615 points.
On August 9, the index shed early gains to end down by nearly 208 points. There was no respite for the index even today as selling pressures dragged it down by 232 points. The view at home is more sombre.
"Indian markets are driven by the liquidity of global markets. Moreover, stock market is an indicator of future events and can not remain unaffected by global events. The sub-prime crisis is affecting funds particularly debt funds in the US and Europe, which indicates the state of overall fund management," said Pankaj Namdharani, Head-equities, SPA Securities.
Several short term triggers that include the Bank of Japan meeting to be held in the third week of August and reports trickling in of global financial institutions' inability to allow redemption are likely to affect the US markets. Market watchers expect the effect on markets as a result of the subprime crisis to intensify post August 15 on the back of redemption pressures.
In order to withdraw money from hedge funds, a 45-day notice period is necessary to submit the application. So for the July quarter, July 1 to Aug 15 is the application period to withdraw serious money from a hedge fund. After August 15, people will probably queue up for redemptions in hedge funds.
"This may lead to a 'cascading liquidity withdrawal' syndrome across emerging markets. That has not happened yet, but if does, the stock prices can be under selling pressure across markets where funds have invested. There could be a lot of jitters in the overall hedge fund universe leading to contraction and pulling out of liquidity from the participatory notes front in the Indian markets," said Seshadri Bharathan, Director - Stock Broking, Dawnay Day AV Securities.
