These are difficult days for the market. The pain is not just in the US or Asia, but across all markets — in particular, all emerging markets have been feeling the tremors of what is being called the Big Market Meltdown.
Billionaire investor George Soros called it the worst financial crisis on earth since World War II. Union Finance Minister P Chidambaram, on the other hand, feels Indian markets should be relatively free from the worries of the West.
What triggered the market meltdown in India, then? Is it only the global cues, or is there more to it? IBNLive readers posed many questions like this to eminent Market Analyst and CNBC-TV18's Executive Editor Udayan Mukherjee. Here is how Udayan responded to these questions.
Vishal Gandhi: Sir, it's really surprising that in 10 trading session we have given out the gains of last 100 trading sessions. We are at the lows where we were at around 2004. Fed has cut the rates by 75Bps points whihc is biggest after 1991, still the US markets are falling.
Fed has cut the rates, the Indian story is Intact, SBI might reduce intrest rates, stocks are at cheap valuations - all these conditoins are in favour of market and still it's volatile. So what's exactly is this? Are we looking for another Harshad Mehta or Ketan Parkeh era or it's just that market is realy bothered about fundamentals?
Udayan Mukherjee: There is no scam in the Indian market which is driving stocks down. This is not a Ketan Parekh/Harshad Mehta kind of fall at all. Sure, excesses happened in the futures market but that is not the same thing as the entire market being rigged up by operators.
Global fears have pricked the local overexuberance that was visible over the last couple of months. This was overdue and the markets will be healthier in the longer term on account of this purging. Don't panic.
Pavan Peri, Mandavelli, Chennai: I just wanted to ask you, with such a huge crash in a few days, will the stock market be able to get the boom that was expected to happen at the end of the year (reaching 25000 mark)? One more thing, why can't India escape from the clucthes of this foreign influence?
Udayan Mukherjee: We live in a global village today and it's very difficult to completely ignore what's going on in other financial markets. After all, the same pool of money sloshes around in all these markets.
A global meltdown affects sentiment and liquidity flows even if they don't alter the fundamental picture of our economy. Keep the faith, it is entirely possible that the market climbs to the levels you are talking about by the end of the year.
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Senthilvel, Anna Nagar, Chennai: I think our markets fall due to FII pullout and panic selling by retail investors. But will the markets recover to 6300 levels in a month or so?
Udayan Mukherjee: To get back to 6300 on the Nifty in just one month maybe a bit tough. While nothing is impossible in a market, the market now perhaps needs to consolidate in a range and soak in the global realities.
Equally, you should perhaps not have such aggressive short term expectations from the market. While the market does look attractive from an investment angle, it is still not prudent to trade aggressively with such stiff Nifty targets.
Anil Yeola : What's the long-term impact (1 year) of the current crisis. Is the market going to slow down?
Udayan Mukherjee: Sentiment has been damaged after this fall. Midcaps collapsed by between 40 and 70% and after such a fall, it takes a while for senitment to stabilise and confidence to return.
As we saw, post May 2006, midcaps underperformed for quite a while as retail traders shied away. That is certainly a possibility so it may be better to focus on good quality midcap stocks which have corrected sharply rather than chase the liquid names in the stock futures segment.
R Vaidianathan, Puliakulam Road, Coimbatore: It is always the retail investor who pays for such fall, both through mutual funds and direct investment. He has been made clueless. The greed of investors is the main reason. Is there still a huge poison in the market blood and should it be taken out?
Udayan Mukherjee: Yes, much of the poison seems to have been flushed out of the system. However, this fall should come as a lesson to retail traders and investors.
They have only themselves to blame for buying midcaps and small caps recklessly or over-leveraging themselves in the derivatives segment. Fingers can hardly be pointed at anyone else, one has to own up to one's own mistakes.
Padmanabhan Ananth, Sarjapur Road, Bangalore: I enjoy your calm cool commentary on Indian Markets every day. I would like to know whether this correction is here to stay or will we see an upward spiral soon enough with the bulls taking charge?
Udayan Mukherjee: Yes, 2008 could be volatile year, but my sense is that after all the turbulence we should still end the year a whole lot higher than where we are today.
This view is based on the premise that fundamentals won't weaken substantially for India and we will therefore be able to weather the wave of global pain better than others.
Venkatesh Korti, Dharwad, Karnataka: If the share market is so dependent on other Global Markets, don\'t you think we need to have our own strategy to counter it (FIIs)? Also, Do you think there should be limit on so-called 'Big IPOs' in the near future?
Udayan Mukherjee: We do have strong insurance companies today who offset a large part of the global selling that comes in, in that sense we are not completely at the mercy of FIIs today, though they remain a very influential category in setting prices.
It's difficult to stop large IPOs from hitting the market but the stock market has inbuilt mechanisms to ward off such excesses. As you have just seen when the supply of paper becomes overwhelming it simply corrects in a way that would prevent large IPOs from bunching up.
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